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 technique to funds. The other method is a bottom-up funds, the place every division and staff proposes a funds based on their wants and targets.
That is widespread in massive organizations and startups alike.
Had I performed a extra energetic position in creating that first advertising and marketing funds, our strategic method and efficiency — to not point out my engagement stage — doubtless would have regarded completely different.
Let’s discover the advantages of bottom-up budgeting and the best 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 staff.
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 tips, workflows, and communication to navigate the budgeting course of.
Whereas this technique has many benefits, it additionally has some drawbacks. Every firm ought to rigorously weigh the professionals and cons and observe finest practices.
Execs of Utilizing a Backside-Up Price range
Backside-up budgeting provides groups and staff extra autonomy and adaptability and might be extra correct. However like every collective decision-making, it’s extra sophisticated to tug off.
Listed below are 4 benefits of the bottom-up budgeting method.
1. Backside-up budgets enhance accuracy.
Finance leaders don’t have an in-depth information of the day-to-day features, 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 staff’s intimate information of the operational realities.
2. Backside-up budgets improve staff 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 staff, nevertheless it positions the corporate for higher efficiency.
“When finance groups give funds house owners extra possession and autonomy to create their funds, there’s higher partnership that may improve accountability to adjust to it and enhance general 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 staff.”
3. Backside-up budgets permit for extra agility.
Since groups are specialists of their useful areas, they’ll anticipate how priorities and prices might change from yr to yr. As an example, non-marketers could also be unaware of how the price of paid promoting has risen lately.
Backside-up budgeting shines because it permits fast changes and variations to altering market situations or inner priorities.
4. Backside-up budgets improve transparency amongst departments.
Backside-up budgeting is a collective course of, and firms utilizing this methodology profit from larger transparency. This contributes to larger belief, accountability, and collaboration.
Cons of Utilizing a Backside-Up Price range
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 threat 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.
Tips on how to counter this: Put money into inner improvement to attach staff and groups to your organization values. Embrace champions from every unit in creating your overarching technique and imaginative and prescient.
2. The method might 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 equivalent to validation and information entry, based on Vena.
Backside-up budgeting entails preliminary communication, forecasting prices and income, consolidating an general funds, and dealing by way of revisions and errors. This could 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 may 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 want to know what the beginning guardrails are and go from there. This may additionally assist with decreasing the probability of funds house owners having to begin the method over if their proposed funds doesn’t match with the corporate’s general goals.”
Tips on how to counter this: Create a well-defined funds course of and oversight (see our detailed implementation ideas under).
3. Backside-up budgets have a larger threat of distorted budgets.
With bottom-up budgets, there’s a threat that every unit will ask for an excessive amount of cash and that the corporate will overspend.
“There’s a excessive risk 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 all the time seems favorable,” cautions Kini.
Tips on how to counter this: Take a sensible have 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 Price range
So, what does a bottom-up funds really appear to be? A bottom-up funds is extra than simply numbers on a spreadsheet. Listed below are all of the elements that go right into a bottom-up funds.
Income Projections
On this part, you’ll add estimates of the revenue or income anticipated from gross sales, providers, investments, grants, or different sources.
Income projections function the muse 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 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 in the course of the funds interval.
Take into account direct prices (e.g., supplies, labor) in addition to oblique prices (e.g., overhead, administrative bills).
Price range Assumptions
Record which assumptions and components you thought of throughout funds planning, equivalent to income and development projections, inflation charges, market tendencies, or regulatory adjustments.
Price range Justifications
Give justifications for every funds line merchandise, detailing the rationale behind it. Hyperlink funds objects to strategic goals and efficiency metrics and account for any will increase from the earlier budgeting interval.
Situation Planning
In bottom-up budgeting, it’s a good suggestion to suggest multiple funds to administration.
This offers 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 in the course of the yr.
Situation planning outlines steps to handle dangers, reallocate sources, or alter funds priorities as wanted. Take into account the instance under from U-nique Accounting Providers, which provides the choice for 3 completely different funds situations.
Instance: Constructing My Personal Backside-Up Price range
Able to see this in motion? Observe alongside as I create a product advertising and marketing funds proposal. For this undertaking, I used a modified model of the HubSpot advertising and marketing funds templates.
Obtain the Advertising Price range 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, equivalent to $10,000 for consumer testing classes underneath product testing.
In a extra detailed model, I’d estimate the fee for every class by month, quarter, and yr.
You’ll discover that I’ve two situations right here. Situation 1, presumably the best one, has a bigger funds of $200,000, whereas Situation 2 has a smaller general quantity of $150,000 to point out how I’d alter for a smaller funds allotment.
Now, to provide my finance division and government management some context, I’ve added three extra columns:
- Value 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 succeed in my value projection.
Under, you’ll see how this appears to be like 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 undertaking 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 lots completely different. It could 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 take into account and stability all wants and priorities.
Get Began: Tips on how to Create a Backside-Up Price range in 5 Steps
Making a bottom-up funds is a giant enterprise and takes collaboration from each a part of an organization! Right here’s the best way to method making a bottom-up funds.
1. Outline budgeting roles.
First, decide all events with a task to play and the way every will take part. Listed below are the gamers who sometimes contribute to the bottom-up budgeting method:
- Government management. Management units the general technique, units strategic targets, and critiques and approves the ultimate budgets.
- Finance. The finance staff is the principle participant answerable for budgeting. They need to develop standardized procedures, practice 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 carefully with field-level employees and operational results in determine the perfect alternatives for useful resource efficiencies.
- Go-to-market staff. Your GTM staff can present key assumptions for the yr like new bookings, product launches, and addressable market to tell your funds wants.
- Human Sources. Human sources 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 fitting instruments and expertise to deal with and analyze funds information, handle approvals, and preserve cybersecurity of economic information.
Make it possible for every staff 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, tips, and timelines for departments, in addition to a transparent course of and acceptable instruments to assist groups.
“The finance staff must have a powerful course of ethic to develop, check, and distribute templates with clear tips and communication about timelines, efficiency metrics, and methods to make clear questions that 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 evaluate to examine for errors as you enter all the things into your bigger funds.
Collectively along with your income projections, you should have a full monetary image of the following budgeting interval.
Relying on the complexity of your group, you will have an preliminary submission and preliminary evaluate earlier than sending the funds on to management.
4. Overview, alter, and finalize your funds.
After getting a full monetary image validated by the finance staff, management can evaluate the grasp funds.
At this stage, they’ll examine this yr’s funds towards 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 might have a bottom-up funds.
5. Monitor funds metrics.
As soon as your funds is finalized, the work isn’t executed. All through the budgeting interval, observe metrics month-to-month, observe efficiency, and report variations.
Budgeting metrics range by business however might embrace gross revenue margin, working money circulation, or working capital.
Use funds management strategies like funds variance to find out any deviations from or corrections wanted to a funds. Take into account the variance report under from Vena for instance of the best way to observe budgeted versus precise bills.
Backside-Up Price range Greatest Practices
To make your budgeting course of easy and profitable, observe this recommendation from mature monetary organizations.
Map out funds timelines and tips.
To handle the advanced course of, talk tips and timelines for each step of the method. You might need to use a undertaking administration software program or different monitoring software to create calendars and preserve 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 grasp that this isn’t a ‘as soon as and executed’ however an iterative course of.”
You also needs to time your funds course of with different key initiatives, like strategic planning.
“Budgeting needs to 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 verify they’re finally aligned.”
Watch out for misallocation.
One hazard of bottom-up budgeting is that division leaders aren’t all enjoying 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 resolve this, it’s vital 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 challenge additional.”
Assist your groups by way of the budgeting course of.
For bottom-up budgeting to work, it have to be really collaborative.
Throughout funds season, groups tackle budgeting tasks along with their on a regular basis job duties. This mix might be irritating already, and an absence of assist from finance companions can add to the stress and decrease morale.
Open a assist channel and talk recurrently about tips and deadlines. Make it user-friendly to account for non-technical funds contributors.
Throughout and after the funds cycle, gather suggestions to determine areas for enchancment.
In the end, this helps create the perfect atmosphere 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 gained’t really feel prefer it’s being imposed onto them,” says Howatson.
When to Use a Backside-Up Price range
In the end, the selection between bottom-up and top-down budgeting is determined by your particular wants and tradition.
Backside-up budgeting might 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 robust 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 take into account the professionals and cons earlier than committing to at least one method over the opposite. Whichever you select, decide to a transparent course of and keep open to worker suggestions.
