Stripe’s approach to budgeting
The budgeting and forecasting process looks different for every company. Depending on company maturity, size, industry, and leaders’ personal preferences, there’s a surprising amount of discrepancy when it comes to financial planning.
Saorise and Maria were kind enough to share their time and expertise with the CFO Connect community. They discussed best practices for financial planning, how their organizations approach budgeting and forecasting, their preferred tools, and much more.
If you’d like to watch the entire webinar with Saoirse and Maria, you can watch it here. If you’d like a recap of their conversation, continue reading below.
What the financial planning cycle looks like at Stripe
As Head of Global Finance & Strategy at payment platform Stripe, plus a nearly 20-year stretch in finance at Microsoft, Saorise Fahey has ample experience with budgeting and forecasting. In her own words, she “loves” the planning time of year. She appreciates that it’s the best time to set goals, get aligned with all the teams, and plan for the next year.
But what does a typical planning cycle look like at Stripe?
“We budget for the upcoming year and the year after. It’s effectively a two-year budget. We reforecast quarterly against that.”
As a payments platform, Stripe has a relatively long time lag from the initial sale or contract until the user is fully onboarded. They use the two years to ensure that they’re clearly capturing return on investment.
Saoirse and her team are realistic about budget expectations. It won’t be perfect every time, but they can learn from their mistakes. “Budget is one of those things where you’re constantly iterating…at Stripe we’re learning and iterating our approach, fine tuning it every year. Every year we do a debrief and find what we could have done better on the back of budgeting.”
She’s sure to bring in other teams along the way in the budgeting process. “It’s a great opportunity to align across all the teams, making sure that sales can hit their targets, that we have the right operations and sales support for what we plan to sell and the number of users. Those interconnected things need to be funded appropriately and make sense for all the teams. In my opinion, that’s a key focus of the exercise as well as the financial plan.”
Saoirse says standard practice is to reforecast once a quarter. But there are extenuating circumstances. At Microsoft, during the economic crash, it was once a week. She feels that every six months is probably appropriate and sufficient for most businesses, although it of course depends on the organization and how quickly things are changing.
Budgets over rolling forecasts
Saoirse doesn’t actually have a strong opinion on rolling forecasts, as the finance team at Stripe does not do them. “I think it’s really good at any one point in time to be able to look forward a certain amount. In theory, it should make an annual process a lot less onerous. I imagine most businesses have a rolling 12-month cash flow, so you probably have a rolling 12-month capital plan. There are elements of your books that should always have rolling, and other elements that would be more tied to a financial year or performance year.”
Maria, on the other hand, is a big proponent of rolling forecasts. “I’m a big fan of rolling. Of course you need to keep track of where you’re going to land the quarter or year, but there’s a danger of losing sight of what happens after. You need to be proactive because something big is coming up. I think the sooner you can implement the rolling, the better. It doesn’t have to be super detailed, just a high-level view.”
Saoirse says that there is probably a happy medium. “Something I’ve seen work well is the concept of Q5. Make sure you’re always planning for quarter five. So you don’t get to the end of the year and think it’s done. You want to avoid that.”
Bottom-up vs. top-down budgeting
There are no hard and fast rules when it comes to top-down versus bottom-up budgeting. Saoirse has seen both extremes throughout her career in finance. In her opinion, a mixture of both approaches works best.
“You need some guardrails on the expected shape of the business over a specific time frame. That helps folks make sure whatever bottom-up work they’re doing lines up with expectations. But it’s really important to do a bottom-up because then you’re able to flag risks, upsides, investments, and the assumptions you’re making.”
“At the end of the day, a budget or forecast is a bunch of assumptions that will probably all be wrong. It’s just a matter of how wrong they are. And boards and CEOs are extremely opinionated, so getting alignment from a top-down shape is really helpful. When you come with your bottom-up ready to go, you can try to work out how to marry the two.”
At Stripe specifically, Saoirse has chosen to do both. “At Stripe, it’s more bottom-up than top-down, so we spend a lot of time on that last stretch, trying to align the bottom-up with expectations from the top.”
Maria agrees that a combination of both tactics works well. “It takes a long time to do bottom-up. But doing bottom-up helps to get commitment from the organization to what we’re here to achieve.”
The more stakeholders you can get involved in their own budgets, the more invested they’ll be.
Classic tools for FP&A
The FP&A team at Stripe is organized with the business partners in mind. Finance, strategy, and FP&A team members align with the big product teams. They work with the business on their parts of the budget, in terms of revenue, margins, and customers.
The tools they use for FP&A purposes at Stripe are classic. Saoirse says that the team budgets in Google Sheets. “We do use a tool called Anaplan, but it’s at the end of the process. We don’t use it as a modeling tool. We don’t have a tool that plans different scenarios.”
Her other preferred tools are familiar names. “I spent a lot of time at Microsoft, so I was a fan of things like PowerBI. On the Stripe side, we partner a lot with data science so we’re using tools like Hubble and Tableau, but that’s more for presenting the data, data scenarios, and trying to manage very large swaths of data. For the most part, we’re still very much spreadsheet based.”
Discover all the insights in the full webinar
Maria and Saoirse covered many topics during their conversation, including outsourcing accounting, how to take currency movement into account in the budgeting process, OKR cycles, and more. Watch the webinar to get their full insights into budgeting and financial planning.
Big thanks to these two top finance leaders for sharing their expertise and tips with the CFO Connect Community!
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