Budgeting for Impact: How Finance Can Lead, Not Just Report

Megan - 00:00:18: Today, my guest is Travis Grundy. Travis has extensive experience solving problems, advising on data-driven decision-making, leading parallel projects, and managing global programs. He is forward-focused, organized, and always eager to learn more. Travis served honorably in the U.S. Army, published over 100 books while leading Zharmae Books, lit up the Hoover Dam Turquoise for National Women's Lung Health Week, and has served on the St. Paul Police Oversight Commission. His scholarly research is focused on the economics of disparity and its practical impacts on business and education. Travis, thank you so much for being my guest on today's episode of CFO Weekly.

Travis - 00:01:31: Thank you for having me.

Megan - 00:01:32: Yeah, I'm looking forward to this topic. Today, we're going to be talking all things budgeting and forecasting, which is timely in today's complex business environment. So, Travis, I'm looking forward to learning about you and your experiences. So let's jump right in. First, just so that we have a bit of background about you, can you just walk us through your career to date?

Travis - 00:01:53: It's kind of been all over the place, being honest. I started out in the military and worked as a paralegal first in time with the military, left the military and went and worked for the federal government first in time, did special events for them at the Hoover Dam and had some pretty exciting wins there. Started a publishing company, did that for six years almost. That was pretty interesting. Went back to school, got a couple of master's, left school and started doing some kind of societal work as an economist and worked for a mental health provider, which is, again, pretty different. And then found myself here with Adventum. We are a fractional CFO.

Megan - 00:02:40: Really have been all over the place. I'm just curious, what'd you do with the mental health provider? Were you a therapist, a counselor?

Travis - 00:02:47: Oh, no, I am not that amazing. Those people, they're the real gems. No, it was actually my very first pure finance role. And so, I was their enterprise, FP&A, and all of their finances.

Megan - 00:03:01: So what was the turning point in your career that sparked your passion for helping businesses to improve their financial strategies and decision making?

Travis - 00:03:09: Honestly, I like to say it's because I'm greedy and I like more money and I like to help other people have more money. The truth is that I think that there are more opportunities for small businesses, medium-sized businesses, to make better decisions when they're budgeting, to make better decisions when they're planning, when they have an idea of what they want the future to look like. I think if you're not making the best possible decisions, then you're really not making decisions at all. You're just kind of rolling with whatever is coming your way.

Megan - 00:03:40: And I'm just curious, but how was it transitioning from the military into the business world? And what lessons from the military did you bring with you?

Travis - 00:03:50: Yeah, I guess from the military, you get a sense of duty and a sense of responsibility. I think of that sense of doing whatever is necessary to get the job done and being responsible for what you're putting out is probably what I've taken most from the military. Obviously, I went in to the military to serve my country and I've always felt very proud of that. But I don't know. I don't know if there was really a direct connection between the military and business. It felt like a pretty clean transition for me. I always liked making money and I think that's really what drew me into business more than anything else.

Megan - 00:04:28: And with your experience advising companies on data-driven decision-making, how is it that you personally approach the budgeting process in emerging companies, particularly when resources are limited and these companies really need to be flexible and agile?

Travis - 00:04:44: My general approach with budgeting is more of a bottoms-up approach. I think that when we understand our unit economics... I think that when we understand our unit economics... Understand what we're spending and we're kind of open about it, then we can kind of start to have a little conversation. So, you know, from that perspective, we start at the absolute lowest expense level that we can. And then we build up from there based on what we think the business should be doing, what we understand the market to look like. That's typically the general process that works best for most companies. Sometimes in very small companies, you might take more of a top-down approach. But the difficulty with that, especially with a small company where a mom and pop is the one that's really leading things but not necessarily leading sales, is that you run the risk of creating a plan that fails to take demand into account and fails to take the reality of sales into account. And so the top-down approach really is an option, but it's not maybe the best option for most organizations.

Megan - 00:05:53: And talk to us about Adventum and your role with Adventum.

Travis - 00:05:58: So Adventum is a boutique outsourced CFO. We've got about 30-ish, 35 clients and mostly work with companies that are under $100 million in revenue. Everywhere from two guys in the garage who are thinking about an idea and ready to move forward with a capital raise to a medium-sized company, smaller-sized company, depending on who you ask. That just completed a raise with a private equity group to companies that are doing fine and are at a place where they need more complex accounting support, more complex financial guidance. But maybe not at a point where they need a full-time 100% CFO and accounting team.

Megan - 00:06:45: So what is your ideal client and how do they know that they need you?

Travis - 00:06:49: I don't know if we have an ideal client. You know, I would say that we're available for people that need solutions. Sorry, I don't really candle our sales. So I wouldn't be the right person to say that I know what our ideal client is. I would say, you know, if you're at a place where you know that you need accounting and finance support, but you aren't in a place where you necessarily are looking to spend for that, that's probably the sweet spot where we come in. But, you know, that being said, you know, we have clients that are in turnaround situations. We have clients that unexpectedly lost their CFO or their accounting team. And we're brought on on very short notice to help them through that process and that transition. That's a hard one for me to say that we have an ideal client in general.

Megan - 00:07:34: And how many years have you been with Adventum?

Travis - 00:07:36: I am going on three years. Yeah, I am still fairly new to Adventum.

Megan - 00:07:42: So just looking back on the last three years, kind of a turbulent time. You know, we had COVID, then we had the economy and politics. How do you ensure that financial projections and forecasts align with real world business conditions, particularly when you're working with startups or emerging businesses?

Travis - 00:08:03: Honestly, it's being the voice of like reason and reality in the room. Oftentimes, you know, founders may tell you that their business is the unicorn and just give them a little bit more time. You know, we're definitely going to sell, you know, millions and millions of, you know, whatever their widget is. That's not always reality. And in fact, you know, in most circumstances, that's not real. You know, I think it's having, you know, having our head to the street and saying, hey, this is reasonable. You've been able to do this. You know, you've been able to accomplish these types of things. And, you know, while you're currently operating at, you know, this level of, you know, marginal output, it's reasonable that you could achieve this type of output. And really, it's about providing a voice that says, hey, I hear what you want to achieve and I support that. But I want to help you present numbers and present information. You know, that's going to pass a straight face test. You know, when you're going out to market, when you're going out to your board, when you're going out to, you know, whoever else, you know, the banks. What we're presenting has to make sense and has to be reasonable. Probably a more recent situation that came up. And we've got a client that does a lot of importing. And, you know, the recent discussion around tariffs, you know, meant that we really had to start thinking about what would tariffs look like and address how do we deal with tariffs, especially if, you know, we can't pass those costs on to the consumer. And so I think it's trying to consider all of the things that could impact, discussing all the things that could impact, and then determining, you know, what's reasonable to include in a model. And then, you know, go forward with making those assumptions and adding them in.

Megan - 00:09:48: And you might have just answered this, but I'm going to ask it anyway. But when you're putting together a budget or forecast, what are you looking at other than just how we did last year plus 3% growth? What kind of things are you taking into account to put together something that's accurate and not just based on last year?

Travis - 00:10:08: I think probably the place where we start first, because it's easiest, is often revenue. And that can look anywhere from, hey, we did a million dollars last year. We want to do $10 million this year, whatever the case is. Maybe it's more like going from 1 to 3 or it's going from 15 to 20. And then we try to build around that with margins in mind. So from there, we'll go and we'll take a look at hiring plan. Who do we have currently in place? Who do we think we might be losing? Who do we need? What are we wanting to pay? What is the market saying should pay? And just between revenue, honestly, and a hiring plan, that can be weeks of work, depending on what particularities that company has. Once we've figured out what our revenue target is, we've figured out who are the people resources that we need, where we need them, and when we need them. Then we start going in and taking a look at our real expenses, right? So we'll start at COGS. We'll run through and we'll do an analysis and say, you know, this is where we've been spending a lot of our money. And we'll take a hard look at all vendors and say, is it possible we've had some application creep? And that's where you might realize that you're spending for four or five or six different applications that you're using in possibly different departments that kind of all did the same thing. And we assess, hey, is it possible that we could switch all of these out for one application and maybe roll it out across the whole company? Take a look at where our source material is coming from if it's involved. Some companies don't only have inventory issues, but some do. And determine, you know, hey, do we feel comfortable with where our trailing 12-month, trailing 18-month inventory has been? Where our trailing these sales outstanding has been? And do we like that? Do we want to adjust how much inventory we're keeping on hand? Do we feel comfortable about that? And then, you know, once we've kind of figured out what that looks like, we move on to our OPEX and pretty much do the same thing. And again, you know, you can't be afraid to really assess, really question, challenge any and all expenses. And this process, as part of the process, can take a lot of time, often because this is the part where we have to say, hey, do you feel comfortable managing to these different changes? Do you feel comfortable telling, you know, your star employee that, you know, they can't have this application anymore, even though that's what they love and like? Because we just, it's really not necessary. Do you feel comfortable that, you know, achieving these types of targets is something that you're willing to continue to enforce? And that kind of a conversation, that can take time. It can take a lot of back and forth. And sometimes, even though I can tell you, hey, we could probably save 50- You know, $50,000 from making these changes. You know, sometimes our founders, sometimes their objective teams, they're not interested in that or they see different value in it. But we have that conversation and we, you know, build that out and then we get it added in. From there, we usually have a reasonable working, basic working model. We have a point in time where we can say, this is what we think we're going to do. We know what we did. This is a reasonable step up in revenue. This is a reasonable step up in our COGS and our OPEX costs. And then we can start, you know, shopping it out and socializing it with the rest of the boards and getting a lot of feedback. And that would be the general process there on a more of an extended basis.

Megan - 00:13:53: And once you've put all this time and energy into creating a budget or forecast, how do you make sure that it's used as a financial tool to enable business strategy? And not just something that, you know, is looked back on 12 months from now and a comparison is done, but it's really used as a tool.

Travis - 00:14:15: First off, you have to socialize these budgets with everybody in the organization that can impact your expenses, right? And your revenue. If your sales team doesn't really understand, certainly if your sales leader doesn't understand what your revenue targets are, you're going to miss them. And if they don't understand what your performance and your quotas are going to be and what they need to be and how they need to communicate that to your sales reps, then you're going to miss your numbers on revenue. And when we're talking about our expenses, if you've got people who are in a position to spend on your credit cards, are in a position to impact or approve spending, or are in a position to control your hourly employee costs, and they don't really understand what they're looking at or understand what the goal is, then you're going to miss those numbers. So the first thing that you do is you have to socialize. And that can be, you know, listening sessions, that can be presentation sessions. Usually if things are going perfect in a perfect world, we're finishing a budget by Thanksgiving, and, you know, between Thanksgiving and Christmas, it's being socialized and are, you know, answering questions and, you know, getting ready to move forward. That's perfect, and that doesn't really ever happen. And so I think the, you know, the first part is you socialize it. Once you've gone beyond the point of socializing it, you have to use it to benchmark against your actual performance. So when you're, when we're doing, you know, recording on a monthly basis, and we're doing our variances against, you know, the month and the quarter, you know, the year, things like that, and variances on KPIs that we're tracking, like, that has to be done monthly. It has to be a conversation where you're looking at, you're saying, hey, you spent, you know, an extra $10,000 here, that you didn't want to spend, didn't plan to spend. Why did you spend it? So the back half of that on a monthly, you know, kind of reportable basis is evaluating not only with leadership who's responsible for these numbers, you know, to a board or to a bank or to other investors, but checking in with the people who actually have an ability to impact your budget and saying, why did you allow this to happen? Why did this happen? Did you, do you recall that we had these limitations in your particular departmental budget? What happened? And now that we understood what happened, what is your plan for next month to avoid it happening again? I think it has to be an ongoing conversation and a frank conversation. Hopefully if everything is going well, it's a relatively pleasant experience that if it's, you know, if things aren't going well, sometimes those conversations might be a little contentious, but they still have to happen.

Megan - 00:16:59: And you've worked in various industries, including healthcare and consulting. How do you tailor your budgeting approach to fit the unique needs of different sectors? And are they unique or are they mostly the same?

Travis - 00:17:12: I don't honestly know that aside from banking or oil and gas, that the budgeting process is truly materially different.

Megan - 00:17:21: Yeah. How do they differ there in banking and oil and gas?

Travis - 00:17:24: Well, you know, banking, how they do budgeting is just different in general, right? How we approach budgeting in a bank is really around the ALM. And that process is a much more complex process. And, you know, around oil and gas, it's really about the reserves. Which, again, is a very different process. You're going to have probably more depreciating assets or different types of depreciating assets. So it's a bit more complex. For most other organizations, really the defining factor is, do we consider this business to be a product business or to be a service business? And while there are certainly particularities in how you might report information, I'd be really hard-pressed to say that the general process is very different. I think that the biggest difference truly is when we're talking about trying to understand inventory purchasing and inventory on hand and our expected demand. That itself is probably more of the defying difference than anything else. The general approach, I think, across most businesses, you know, how you approach it, what you do, and why you do it is generally the same. I think I might caveat that with the process for budgeting and planning is maybe a little different for very, very small companies where maybe just a founder, you know, and a handful of people that are contracted, you know, on part-time basis for different types of work for the company. I think that maybe is a little bit different project and then it's streamlined and there's less people that need to be involved versus most other organizations where the back and forth and the approval can be something that takes weeks, or months in some cases.

Megan - 00:19:05: And I'm not sure if you'll know the answer to this or not, but just along the lines of oil and gas or a commodity business where, you know, you don't have pricing power, price is kind of just dictated to you by the market. How can you put together a budget in a situation like that when you don't know what your price is going to be?

Travis - 00:19:23: Related to oil and gas, I'm not sure that I'm the right person to answer that. I would say maybe more generally, if you're talking about a business that doesn't have pricing power, they're not a large business, they don't have the ability to really control the pricing, they are taking the price. From there, you have to start using the rest of your KPIs and that's your sources to make those decisions, right? So hopefully you have enough ability to determine or know what you are wholesaling your products for. And, I think really, we're talking about a product that's right, so, we have an idea of what they're wholesaling their products for. If they have an ability to retail products, then hopefully they know what they're pricing them at. I think we... In that case, it's more important for us to understand where target margin is and historically, what our historic demand has been and what seasonality looks like around that demand. I think if we have that information and we have another information to determine what our sales performance or sales staff and our pipeline can look like with those, I think that's usually enough to get a reasonable estimate for what the year ahead is going to look like. Assuming that our sales numbers hold through and the bookings from sales people hold through and that the variances during the year are consistent with our historical seasonality, I think that that's usually enough information to get a reasonable estimate for a year ahead. And then obviously, we would check that against prior performance. Does it seem reasonable? Does it seem consistent? And is it generally heading towards or supporting the direction that we need this to go? I think that that's probably the best way to go with that, you know, with the caveat that that's where we start getting into more of the art versus maybe the technical skills of FP&A.

Megan - 00:21:13: Thank you for that. So data-driven decision making is a cornerstone of your approach. How do you utilize financial data and analytics to improve the accuracy of budgeting and create actionable insights for the leaders you work with?

Travis - 00:21:26: Thinking about economics, we would know that our prior period and most recent period is our best indication of the future. So what we did last year is our best guess. Truthfully, it's our best guess of what we're going to do this year. Keeping that in mind, you know, the way that I would use data to make decisions or to help other people make decisions, it's really about, at least for me, it's about looking at and saying, hey, these are the myriad KPIs that we're tracking anywhere from 3 to 20, depending on the organization. When we roll forward this forecast for the next year, are we seeing similarities that make sense in those KPIs? Are they holding steady or are they moving in a direction that we would expect it to move? And are we seeing, you know, a lot of choppiness in that data? I think it's also worth looking at individual GLMs and how much is on a percent basis they take up compared to others. You know, are we seeing significant expansion where we may or may not have expected or contraction in that case? Those would be kind of what I would look at. Generally, for most organizations, you know, I think it's good to have basic financial KPIs as a benchmark to kind of make sure that nothing is really wild, really all over the place. But with KPIs, especially like tech companies, things like that, or inventory companies, you know, DSO and ARR, those are better metrics to use than anything else. So I think that it's really a variety of the tools. And it's overall, what are they saying? How are they looking? How are they trending? And that's more of a collaborative effort with them to say, these look like they're reasonable. They look like they're trending in the right direction. They, you know, look like where we want to achieve. And they're supporting reasonable margins. So these appear to be reasonable versus, you know, sometimes you have a founder or a leader who says, you know, I really want to hit this number. And I think I can hit this number. We test that out. And, you know, sometimes it still looks reasonable. And sometimes it doesn't. But I would use KPIs as a guide to help drive that conversation.

Megan - 00:23:47: And are there any tools, FP&A or other, that you're particularly enjoying at the moment, maybe for data visualization or analysis? Any FP&A tools out there that you're fond of?

Travis - 00:24:01: Oh, I mean, there's Excel. I don't know if anybody can get away from Excel.

Megan - 00:24:05: I don't think so. I don't think that will ever happen.

Travis - 00:24:08: I mean, I guess you could try. And, you know, there's definitely been some tries. There was one tool I tried. We were piloting a little called Amalgam. And, you know, where this stemmed from is, you know, most small businesses, they use QuickBooks, right? You know, we've got some others that will use Xero. They'll use NetSuite, whatever. But Amalgam, I thought was pretty interesting. You know, we were kind of knee-deep towards the middle of the year, you know, just doing these really detailed analysis, you know, by GL code, by vendor, transaction by transaction. That's a lot of work. What I liked about that tool, and, you know, there were a few others that we looked at, is its connectivity between Excel and QuickBooks and the ability to make changes in Excel and have it, you know, direct itself right into QuickBooks. And, you know, I think that you can get that same functionality, you know, with an advanced version of QuickBooks. But for the everyday user, especially for somebody like me, you know, and some of my accountants who are, again, knee-deep in some really, you know, transaction by transaction work. Just having that ability to make a change in Excel and have it appear in QuickBooks, I mean, that's a game-changer. So I don't know if that's something that we'll continue to use necessarily, but for talking about not Excel, that was a pretty interesting tool.

Megan - 00:25:32: And last question, but looking ahead, what do you believe will be the key trend in financial planning and budgeting for businesses over the next five years? I mean, we have, you know, we were discussing ChatGPT, Generative AI. Where are we heading with all of this?

Travis - 00:25:49: I don't think that we're in a place where ChatGPT, or Generative AI can think for us yet. I think that we're moving towards maybe a demand from investors, from boards, from banks for real numbers, you know, less aspiration. So I think from a general approach to forecasting, I think you're going to see more of an emphasis on what is the real number you can actually achieve. Whether it looks kind of ugly or not, can you actually achieve that? And I think you're going to see more emphasis on holding people to achieving those numbers. From a Generative AI perspective or, you know, a use of ChatGPT, I think we're going to move towards a point eventually where we'll be able to communicate information into ChatGPT, or into Generative AI, or whatever that tool might look like. And explain, oh, hey, we want to see this type of trend, this type of growth over this time period, and have it give us a starting point to start analyzing and sort of having conversations from. I think that there are a lot of people that get a hunch and they're really good, you know, at following through in those hunches and making sure that they come to fruition. But until we are able to figure out a way to actually code for that hunch, we're not going to get away from you and me sitting down and looking at the numbers and saying, this looks right, you know, it doesn't look right, feels kind of right, or it doesn't feel kind of right.

Megan - 00:27:19: Maybe technology will someday get us out of Excel. I'm not sure.

Travis - 00:27:23: I don't know if technology is ever going to get us out of Excel. I don't think it's going to get FP&A or accountants out of Excel. I think we're hardwired to think in Excel.

Megan - 00:27:32: Travis, thank you so much for being my guest today.

Travis - 00:27:34: Thank you so much for having me.

Megan - 00:27:36: I really enjoyed speaking with you. And thank you very much for finding the time to be here with us today to share your experience and knowledge. And I wish you all the best.

Travis - 00:27:44: Thank you so much, Megan.

Megan - 00:27:46: And to our listeners, please tune in next week. And until then, take care.