The primary time I managed a advertising and marketing funds, I used to be handed a greenback determine and requested to perform X, Y, and Z with it. The next yr, I used to be requested to do extra with a barely smaller funds. Sound acquainted?
Whereas this top-down method is widespread, it isn’t the one strategy to funds. The alternative method is a bottom-up funds, the place every division and group proposes a funds in keeping with their wants and targets.
That is widespread in giant organizations and startups alike.
Had I performed a extra lively position in creating that first advertising and marketing funds, our strategic method and efficiency — to not point out my engagement stage — probably would have regarded completely different.
Let’s discover the advantages of bottom-up budgeting and the way to implement it at your organization.
Desk of Contents
What’s a bottom-up funds?
A bottom-up funds is a budgeting methodology the place particular person departments suggest their very own budgets to be consolidated by the centralized finance group.
In contrast to top-down budgeting which takes a prescriptive method to assigning funds quantities to groups, bottom-up budgeting is a collaborative methodology.
Prime-Down vs. Backside-Up Budgets
For bottom-up budgeting to work, corporations want exemplary pointers, workflows, and communication to navigate the budgeting course of.
Whereas this technique has many benefits, it additionally has some drawbacks. Every firm ought to fastidiously weigh the professionals and cons and observe finest practices.
Execs of Utilizing a Backside-Up Funds
Backside-up budgeting provides groups and workers extra autonomy and adaptability and will be extra correct. However like several collective decision-making, it’s extra difficult to tug off.
Listed here are 4 benefits of the bottom-up budgeting method.
1. Backside-up budgets enhance accuracy.
Finance leaders don’t have an in-depth data of the day-to-day capabilities, wants, and constraints of every unit. The groups that perform this work do.
When the groups doing the work create the funds, it’s extra more likely to be detailed and correct due to the group’s intimate data of the operational realities.
2. Backside-up budgets enhance group autonomy and engagement.
Inviting groups to take part within the budgeting course of provides them extra autonomy and engagement with their work. Not solely can this assist have interaction and retain workers, nevertheless it positions the corporate for higher efficiency.
“When finance groups give funds homeowners extra possession and autonomy to create their funds, there may be higher partnership that may enhance accountability to adjust to it and enhance total monetary efficiency,” shares Bala Kini, senior director and monetary marketing consultant at ZRG Companions.
“This fosters a tradition of empowerment and collaboration between all ranges of workers.”
3. Backside-up budgets enable for extra agility.
Since groups are specialists of their purposeful areas, they will anticipate how priorities and prices might change from yr to yr. For example, non-marketers could also be unaware of how the price of paid promoting has risen in recent times.
Backside-up budgeting shines because it permits fast changes and diversifications to altering market situations or inner priorities.
4. Backside-up budgets enhance transparency amongst departments.
Backside-up budgeting is a collective course of, and firms utilizing this methodology profit from higher transparency. This contributes to higher belief, accountability, and collaboration.
Cons of Utilizing a Backside-Up Funds
Regardless of the advantages, bottom-up budgeting brings some challenges together with it.
1. Backside-up budgets can result in misalignment between the corporate and departments.
If departmental targets and techniques don’t align with overarching firm targets, there’s a danger of strategic misalignment.
“I’ve seen circumstances the place decrease ranges of administration are blindsided by their operational wants and deliverables and lose sight of the corporate’s long-term strategic targets,” says Kini.
How one can counter this: Put money into inner improvement to attach workers and groups to your organization values. Embrace champions from every unit in creating your overarching technique and imaginative and prescient.
2. The method will be cumbersome and time-consuming.
The method of bottom-up budgeting is extra advanced and time-consuming. 73% of organizations say they spend an excessive amount of time on handbook funds processes similar to validation and information entry, in keeping with Vena.
Backside-up budgeting entails preliminary communication, forecasting prices and income, consolidating an total funds, and dealing by way of revisions and errors. This will make the method slower and inefficient and create the next oblique value from worker time spent on budgeting.
“Constructing the funds from the bottom up will also be daunting for funds contributors,” explains Melissa Howatson, CFO at Vena and host of The CFO Present podcast.
“In lots of circumstances, managers would really choose to know what the beginning guardrails are and go from there. This could additionally assist with decreasing the probability of funds homeowners having to begin the method over if their proposed funds doesn’t match with the corporate’s total targets.”
How one can counter this: Create a well-defined funds course of and oversight (see our detailed implementation ideas under).
3. Backside-up budgets have a higher danger of distorted budgets.
With bottom-up budgets, there’s a danger that every unit will ask for an excessive amount of cash and that the corporate will overspend.
“There’s a excessive chance that division leads method this as a ‘clean examine’ alternative and inflate their expense funds and underestimate revenues (overestimate losses) in order that their efficiency at all times seems favorable,” cautions Kini.
How one can counter this: Take a practical take a look at your projected income for the yr. Within the consolidation course of, ask departments to make cuts if crucial.
Anatomy of a Backside-Up Funds
So, what does a bottom-up funds really appear to be? A bottom-up funds is extra than simply numbers on a spreadsheet. Listed here are all of the elements that go right into a bottom-up funds.
Income Projections
On this part, you’ll add estimates of the earnings or income anticipated from gross sales, companies, investments, grants, or different sources.
Income projections function the inspiration for budgeting bills. In case your unit isn’t a revenue-generating one, skip this step.
Expense Classes
Begin by breaking down your projected bills into classes like:
- Personnel (salaries, advantages).
- Working bills (lease, utilities, workplace provides).
- Advertising and marketing bills (companies, advert campaigns, manufacturing).
- Gear or capital expenditures.
- Analysis and improvement.
Expense Estimates
Now, we come to the greenback quantities. Estimate how a lot you’ll spend on particular actions, tasks, or initiatives through the funds interval.
Think about direct prices (e.g., supplies, labor) in addition to oblique prices (e.g., overhead, administrative bills).
Funds Assumptions
Checklist which assumptions and elements you thought-about throughout funds planning, similar to income and development projections, inflation charges, market tendencies, or regulatory adjustments.
Funds Justifications
Give justifications for every funds line merchandise, detailing the rationale behind it. Hyperlink funds gadgets to strategic targets and efficiency metrics and account for any will increase from the earlier budgeting interval.
State of affairs Planning
In bottom-up budgeting, it’s a good suggestion to suggest multiple funds to administration.
This provides groups the agility to adapt, however retain possession in the event that they don’t obtain the funds quantity they requested, or unexpected circumstances change funds assumptions or monetary efficiency through the yr.
State of affairs planning outlines steps to handle dangers, reallocate assets, or modify funds priorities as wanted. Think about the instance under from U-nique Accounting Companies, which supplies the choice for 3 completely different funds eventualities.
Instance: Constructing My Personal Backside-Up Funds
Able to see this in motion? Observe alongside as I create a product advertising and marketing funds proposal. For this challenge, I used a modified model of the HubSpot advertising and marketing funds templates.
Obtain the Advertising and marketing Funds Templates
First, I began by breaking my product advertising and marketing prices into expense classes.
For these, I selected product/market match, product testing, product releases, and content material. I listed out every anticipated value, similar to $10,000 for consumer testing periods underneath product testing.
In a extra detailed model, I might estimate the associated fee for every class by month, quarter, and yr.
You’ll discover that I’ve two eventualities right here. State of affairs 1, presumably the best one, has a bigger funds of $200,000, whereas State of affairs 2 has a smaller total quantity of $150,000 to point out how I might modify for a smaller funds allotment.
Now, to provide my finance division and govt management some context, I’ve added three further columns:
- Price clarification breaking the road merchandise down into smaller prices and wishes.
- Targets displaying the objective of every merchandise or initiative it helps.
- Assumptions I made to achieve my value projection.
Under, you’ll see how this appears for the content material class.
Lastly, right here’s your complete funds proposal put collectively. The graph on the backside exhibits how my funds breaks down by class.
The great thing about this template is that I can use it for funds monitoring all year long, utilizing the precise column to trace bills.
On the finish of the yr, I can use the precise expense information in a funds evaluation to challenge a extra correct funds for the next yr.
As soon as I submit my funds proposal to my finance division, the consolidated funds will look loads completely different. It might look one thing like this annual funds template from Google Sheets.
Right here, you’ll be able to see my product advertising and marketing funds in context with bills from all throughout the corporate: authorized, insurance coverage, taxes, and extra. That method, firm management can contemplate and steadiness all wants and priorities.
Get Began: How one can Create a Backside-Up Funds in 5 Steps
Making a bottom-up funds is an enormous enterprise and takes collaboration from each a part of an organization! Right here’s the way to method making a bottom-up funds.
1. Outline budgeting roles.
First, decide all events with a job to play and the way every will take part. Listed here are the gamers who usually contribute to the bottom-up budgeting method:
- Government management. Management units the general technique, units strategic targets, and opinions and approves the ultimate budgets.
- Finance. The finance group is the principle participant answerable for budgeting. They need to develop standardized procedures, prepare and assist division heads, reviewing submissions for accuracy, consistency, and strategic alignment.
- Division heads. Division leads are accountable for the accuracy of their budgets and for making certain that the funds aligns with their targets. They need to work intently with field-level employees and operational results in establish the very best alternatives for useful resource efficiencies.
- Go-to-market group. Your GTM group can present key assumptions for the yr like new bookings, product launches, and addressable market to tell your funds wants.
- Human Sources. Human assets can contribute to estimates of job salaries, advantages, and different employment prices like retention initiatives.
- IT. Of finance leaders, 49% rely closely on IT to handle their current techniques. IT departments can present the proper instruments and know-how to deal with and analyze funds information, handle approvals, and keep cybersecurity of monetary information.
Ensure that every group understands its roles and tasks for a profitable partnership between departments.
2. Ask departments to submit a funds proposal.
Subsequent, ask departments to submit their budgets to you. Give a transparent scope, pointers, and timelines for departments, in addition to a transparent course of and acceptable instruments to assist groups.
“The finance group must have a powerful course of ethic to develop, take a look at, and distribute templates with clear pointers and communication about timelines, efficiency metrics, and methods to make clear questions which will come up,” says Kini.
3. Consolidate departmental budgets.
Subsequent, mix all the person funds proposals into one grasp funds.
Carry out a high quality evaluation to examine for errors as you enter every part into your bigger funds.
Collectively along with your income projections, you’ll have a full monetary image of the subsequent budgeting interval.
Relying on the complexity of your group, you could have an preliminary submission and preliminary evaluation earlier than sending the funds on to management.
4. Overview, modify, and finalize your funds.
After you have a full monetary image validated by the finance group, management can evaluation the grasp funds.
At this stage, they will examine this yr’s funds in opposition to final yr, ask questions of division heads, and ask models to make adjustments if wanted. As soon as all iterations are full and permitted, you will have a bottom-up funds.
5. Observe funds metrics.
As soon as your funds is finalized, the work isn’t carried out. All through the budgeting interval, observe metrics month-to-month, observe efficiency, and report variations.
Budgeting metrics range by business however might embody gross revenue margin, working money stream, or working capital.
Use funds management strategies like funds variance to find out any deviations from or corrections wanted to a funds. Think about the variance report under from Vena for example of the way to observe budgeted versus precise bills.
Backside-Up Funds Greatest Practices
To make your budgeting course of easy and profitable, observe this recommendation from mature monetary organizations.
Map out funds timelines and pointers.
To handle the advanced course of, talk pointers and timelines for each step of the method. You might need to use a challenge administration software program or different monitoring software to create calendars and maintain everybody on observe.
Kini advises, “When setting timelines, work backward from goal dates and by no means lose sight of the truth that groups have their operational tasks and constraints. Groups want to know that this isn’t a ‘as soon as and carried out’ however an iterative course of.”
You must also time your funds course of with different key initiatives, like strategic planning.
“Budgeting must be one workstream that’s a part of a complete annual working plan,” says Howatson. “The funds creation course of ought to occur with context into different key enterprise plans to ensure they’re in the end aligned.”
Watch out for misallocation.
One hazard of bottom-up budgeting is that division leaders aren’t all taking part in by the identical guidelines.
Stronger voices might construct in a buffer and find yourself with extra funds than they want, whereas leaders who push for effectivity can find yourself deprived.
“To unravel this, it’s necessary for finance and HR to be efficient enterprise companions all through the entire funds creation course of and guarantee consistency throughout how managers are approaching their funds inputs,” advises Howatson.
“Offering funds contributors with guardrails ensures the funds course of isn’t fully open-ended, serving to keep away from this subject additional.”
Assist your groups by way of the budgeting course of.
For bottom-up budgeting to work, it should be actually collaborative.
Throughout funds season, groups tackle budgeting tasks along with their on a regular basis job duties. This mix will be disturbing already, and a scarcity of assist from finance companions can add to the stress and decrease morale.
Open a assist channel and talk often about pointers and deadlines. Make it user-friendly to account for non-technical funds contributors.
Throughout and after the funds cycle, acquire suggestions to establish areas for enchancment.
Finally, this helps create the very best setting for profitable bottom-up budgeting.
“A bottom-up method lets you get buy-in from throughout the enterprise, and since particular person managers successfully ‘personal’ the funds, they received’t really feel prefer it’s being imposed onto them,” says Howatson.
When to Use a Backside-Up Funds
Finally, the selection between bottom-up and top-down budgeting relies on your particular wants and tradition.
Backside-up budgeting will be advantageous in fast-changing industries or startups the place field-level insights are essential, in addition to in extremely collaborative, cross-disciplinary corporations.
To reap its advantages, your organization wants sturdy monetary self-discipline.
If a enterprise is small, operates in a really predictable business, or doesn’t have a mature finance division, a top-down method could also be extra appropriate.
Rigorously contemplate the professionals and cons earlier than committing to 1 method over the opposite. Whichever you select, decide to a transparent course of and keep open to worker suggestions.
