Setting (and revising) your annual budget: A conversation with five-time CFO Caitlin Haberberger

The important difference between budgets and forecasts, and why it’s probably a good idea to recalibrate your budget mid-year

No matter your company stage, a lot of work goes into creating your annual budget. After building internal alignment, getting approval from your board, and implementing your new plan, you’re probably ready to leave that process behind and head confidently into the coming year.

So what happens when something comes up mid-way through the year that throws your carefully crafted budget into question? Even a positive event, like raising a new funding round, could prompt your team to reconsider how you should allocate spend in the next few quarters.

If you ask Caitlin Haberberger, a five-time CFO with decades of experience at fast-growing startups, revising your budget at mid-year isn’t just normal—it can be the best practice for early-stage companies that are in a constant evolution.

Haberberger sat down with Anrok co-founder and CEO Michelle Valentine to share her perspective on setting successful budgets, leveraging forecasts, and aligning around off-cycle budget updates with your board.

Transcript

Michelle Valentine: I’m excited to be here with Caitlin Haberberger, a veteran CFO at companies like Amplitude and Mezbo, and I’m excited to share her wisdom around executing and setting successful annual budgets. 

Caitlin Haberberger: Hi, I’m super excited to join you, Michelle, and look forward to our conversation today.

MV: Fantastic. Caitlin, can you share a little bit about your background before we jump in?

CH: Sure. I’ve had the opportunity to work at a lot of fast-growing venture-backed startups, primarily enterprise SaaS companies. And what I love about working at these types of companies is being able to jump in and help solve so many different business problems.

So I’ve certainly seen a lot from being at companies that have thrived and gone on to go public, companies that have been acquired—there’s lots of different paths. And so I bring those experiences to bear every time I approach a new problem, a new company, et cetera.

MV: So we’re talking about annual planning today, and this often happens at year end. 

Before we even talk about why you might need to revise it, can you share a little bit about your philosophy on setting an annual budget?

CH: I have a lot of strong feelings about this. I think that the budget should be the culmination of a much broader planning process. And I’ve been in situations where I’ve had someone ask me: Can you set the budget for us for the next year?

Okay, I have a lot of questions.

What are our goals? What’s the market opportunity? What problems are we trying to solve? Where do we need investment? What metrics do we care most about?

And so, I hate being that person who just comes with more questions, but I think the planning process starts way upstream of a budget being produced, and I think that’s actually where companies get it wrong.

They wait. They think they’ve got to deliver the board a financial plan and budget, but they’ve missed a lot of the essential prep work that happens from an exec team working together to define, what’s our mission? What’s most important in the next 24 months? How does that break down to the next 12 months?

What kinds of results can we reasonably expect? What markets are we going after? What problems are we going to solve? And that might sound daunting and there’s tons of frameworks out there. And as an early-stage startup, you don’t have to adopt a super complex framework, but you have to go through some planning exercise before you can think about how you’re going to apply resources against that.

And I think that when you don’t start with the upstream planning, you can end up in a situation where you’ve got a budget where people aren’t aligned. They don’t understand why they have, or don’t have certain resources. You’ve got sales targets as a part of your financial plan, but do you actually have the resources on the sales and marketing side to achieve that? Has product delivered enough product to go hit those sales goals?

So the budget itself is a culmination and a representation of all the planning, the metrics that you’re expected to hit, the investment that’s needed, the resources, and without going through a planning process, you’re going to miss the alignment that’s needed to go execute on your business strategy.

MV: I like that flag a lot where a lot of people miss the upstream planning portion and focus too much on the nitty-gritty of setting the financial plan and annual budget.

If you were to prescribe a rough percentage on what you think time allocated looks like, how much time should teams be spending on that upstream planning portion versus this downstream, like setting the financial plan in Excel?

CH: That’s interesting. I haven’t thought about it quite that way before. It might surprise you. But I think it’s 80 percent is up front and maybe 20 percent is on the actual budget. Not to downplay—there’s a lot of nuts and bolts and nitty-gritty.

But it’s a lot easier to get through the nuts and bolts when you’ve done the upfront work and you know what you’re targeting towards and you have that alignment.

So that when you’re making those inevitable resource tradeoffs that are needed, if you’re starting with an executive team that’s thinking holistically about the problems that they’re trying to solve together and the resources that the company needs rather than the resources that a specific team needs, it makes that budgeting process and that planning process so much easier on the back end.

MV: And when you are reviewing an annual budget for the first time, are there specific rules of thumb or things that you’re paying attention to, that you as a CFO are looking at that you wish your team paid more attention to?

CH: There’s obviously some high-level metrics that matter most, right? Is the growth rate tied well enough with the spend rates, with the ultimate net, let’s say it’s a net loss, but hopefully moving to net profit.

So do those things all hold together? Do they line up appropriately? I have certain checks that I’ll always use. So as a percentage of revenue and a percentage of spend, how much are we spending on the big buckets using the SEC categories, of sales and marketing, research and development, G&A.

Even though there’s not a right answer, but there are reasonable ranges. So I’m going to look at things like that. And then I’m always going to pay attention to the cashflow. That may sound super, super obvious, but sometimes that gets lost in the shuffle.

So I’m going to always use those as my guideposts. And I have sanity checks that I can apply against that might pop out—are we overweighted in a certain area?

And then I’d also start looking downstream a little bit, at some of the underlying investment areas, like if it’s sales capacity on a sales rep standpoint. So looking at some of those other pieces and making sure that I’m confident kind of how that all lines up together.

MV: You mentioned cashflow, if we can spend a few minutes on that. If you’re a Series C finance leader versus a pre-IPO finance leader, how should you be thinking about the cashflow item of the budget differently? 

CH: In an early stage, it’s expected that you’re going to be investing heavily into the opportunity. Somebody has given you money from their venture fund because they see a great opportunity.

They believe in the team and they want you to go spend their money to get that product to market, to get those first customers, to go after that opportunity. And you’re there to do that. And so you need to monitor your cashflow in that you need to have enough cash to get you to your next financing opportunity.

And in today’s market, that might look different than it did a few years ago, in terms of how freely you’re spending against that opportunity because that next financing opportunity might be a lot harder to come by. But the general concept, you’re there to spend that money to go after the opportunity.

You may not even have any revenue yet, and that’s okay. The closer you get to going public, the more your financial model has to make sense. Whether you’re going public as cashflow positive or close to cashflow positive or breakeven or incredibly profitable, it’s going to be expected that you are tightly managing that. And at that point, at the point you go public, you’re not managing to your next financing event, right? Like you’ve had your financing event and you’re managing towards delivering the most value to your investors.

So there’s the common thread with the early stages: You’re trying to deliver value to investors, but how you get there is going to look really different depending on your stage.

MV: Your point about the financing event changing how you should think about the annual budget is one of the reasons why we’re talking today. 

Even for Anrok, we recently raised a Series B and that has made us think, should we revise our annual budget? How common is it for teams to rethink the annual budget after a fundraise?

CH: It’s a really interesting question to think about because it’s like everything changed and then nothing changed at the same time. And what I mean by that is, hopefully, you had a financial plan or board-approved budget going into the period that you did your fundraise. And then I imagine through your fundraise, there’s certain financial projections you made and promises around expected growth, around metrics, around how that shape of the business is going to look and what you’re going to do with that money that those investors just gave you.

I really think about it as: What has changed? So the financing event— it’s simply a financing event. You got more cash. Great. Now, what’s changed in the business? How does this now free you up to go invest into things that because you didn’t have that cash in the bank?

And that might cause you to reassess your budget. But it also may be that your budget has already reflected anticipating that those funds came in.

Dangerous things I’ve seen at other companies have been that celebration of, we’ve raised the money and now everybody on the exec team is coming. Like great, now that we raised the money, I need four more sales reps, and I need another million dollars of demand gen spend, I need another financial analyst now to figure out how to analyze how we’re going to use that $50 million we raised.

And so everybody thinks things are going to open up, and I think it’s really important for a company after a fundraise to maintain rigor around those investments and with a lot of clarity at the exec team level around what are the expected outcomes for any incremental investments that get made because the company now has the resources to make those investments.

MV: One thing I’m hearing you say is there’s a difference between a budget and a forecast. Can you say a bit more about the key difference in your mind, and what teams should keep in mind?

CH: That’s a great question. A budget is typically for governance and just good business practices, something you’re going to have every year. It’s going to tell you what are you expecting is coming in from your customers on the revenue side, and then how are you investing into your company all the way through to cashflow as we talked about.

That budget gets stamped, sealed, approved by the board. It’s a static document, but the minute it gets approved or even before it’s approved, the forecast of what’s actually going to happen is already changed. It memorializes things and captures things at a point in time and immediately starts changing.

And so I think about a forecast as: Great, we set our plan. But now we’re actually going out and executing, and nothing’s ever going to look exactly like that plan that you set out. And so the forecast becomes the living, breathing document of how are we actually now doing and projecting we’re going to do for the rest of the year. And that’s something that needs to be updated, monthly, maybe quarterly, if you’re on a really small team.

Are we on course? Are we off course? Do we understand why? Is that okay that we’re off course? Is that not okay? What I typically see at fast-growing startups is you set your budget for the year, and by May you’re wildly off from that, hopefully on the positive side, meaning you’ve got way more revenue than you expected.

Typically, what I’ve done at most startups I’ve been at is that in the middle of the year, we revise our budget for the rest of the year and have the board formally approve this budget reset. 

It gives me some confidence and security knowing that the board is fully in the loop on everything going on financially with the company. If you’ve somehow managed to set a budget at the beginning of the year that you haven’t varied from too much, great. You don’t need to reset it. I also don’t advise resetting it every quarter because that shows me that you’re just spending your time on the wrong things. 

MV: How have you broached that question to the board of should we revise the budget mid-year?

CH: Let’s say it’s April and things are starting to look pretty different than that initial budget. First of all, that wouldn’t be a surprise at that point, because we already would know that and have been communicating that to the board.

But I’ve often sat down with a few key board members and said: Hey, look, our forecast now for the rest of the year is looking like this. Our budget was this. I think we really need to realign with the board on where we’re investing. And ask them: How do you feel? I would be more comfortable resetting the budget for second half of the year. Do you agree? Here’s my reasoning why.

I’m getting their buy-in up front, and never spring that on them in a board meeting. I think it comes down to showing that you’re understanding the business. So it’s really for alignment purposes, is where I see it coming into play.

MV: A big learning for me as Anrok has grown is, a lot of the budget in the beginning, everyone is dedicating their time to building the product, R&D. And then at some point you hit product-market fit and you start building teams and systems and processes to get your product out there, distribution, and scale the product. And then at some point you should be getting economies of scale from those systems and from that process.

How have you seen that transition be reflected in an annual budget? Like, how soon should you start factoring in those potential economies of scale into your annual budget?

CH: You really need to have a three-year financial plan. And the annual plan is then one step on that journey of what that three-year plan looks like. Three years out from now, what’s the shape of the business that makes sense?

There’s different groups where you can get some of the data around other companies that are at that growth stage. How are they spending their money? And I like using that data to help shape out. So three years from now, if we’re, let’s say, a company that’s at $30 million in ARR, I could have an idea of, okay, we’re not going to be fully efficient on sales and marketing, but we’re going to look a lot more efficient than we look today.

And our investment into engineering and product is probably going to taper down a little bit at that point, but it’s not going to be as efficient as a company that’s about to go public. And that’s where there’s art mixed in with science, because I can’t tell you that in three years at $30 million in ARR that, R&D should be 36.9 percent of your revenue, right? But I could tell you that it shouldn’t be more than 50 percent and it probably should be more than 20 percent.

So it’s using that long-range plan and then backing that up to where you are today and thinking about the path to get there, is the approach that I would take.

MV: What’s the one piece of advice that you want to leave founders with that are working with their CFOs, with their finance teams, on revising an annual budget after a fundraise?

CH: I think the highest-level thing is the exec team needs to be aligned around where the company is headed, what’s most important, what’s expected, what’s been promised to your new investors.

And then there’s alignment between the CEO and the CFO on the overall shape of the financial picture, like how much are we willing to invest at a high level? What is a reasonable level of cash burn?

Then those two things can come together.

MV: I like that a lot. I think for me, the big two takeaways that I got from you today was one, the upfront investment in the big picture vision before jumping into the weeds of the numbers with that exec team.

And number two, revising the annual budget partway through the year-that is normal, right? It’s not too atypical to say partway through, the forecast is looking different than the budget. It’s time to revise.

So thank you so much for sharing your wisdom. It was really fun having you today.

CH: You’re welcome. ⊞