Improve Tech Company Budgeting: Avoiding Common Mistakes

January 24, 2025 Mimi Torrington

accountant for tech company struggling with budgeting mistakes

In this episode of CFO Weekly, CJ Gustafson, Chief Financial Officer at PartsTech, joins Megan Weis to discuss the annual planning process and the metrics that go into building a good budget. CJ also discusses the importance of storytelling in finance, how to foster a people-centric approach to budgeting in your company, common mistakes and how to overcome them, and the role of AI and analytics in transforming budgeting for the tech industry in the years ahead.

CJ is a seasoned CFO with vast experience in the tech industry, particularly in scaling software companies through strategic financial management. With a background that includes consulting at PwC and working in private equity, CJ has developed a keen understanding of business models and the complexities of revenue growth. He has played key roles in hyper-growth environments, focusing on financial planning and analysis, sales operations, and overall corporate strategy.

Show/Hide Transcript

Megan - 00:00:34: Today, my guest is CJ Gustafson. In his career, Cj has had the opportunity of working in finance on both the funding and funded sides of the table. As an operator in the software space, he's enjoyed tackling problems across corporate finance, strategy, and operations. And he strongly feels there's an art in making the complex simple. He's been a key part of helping his team raise funding and allocate resources to drive durable long-term revenue growth. His favorite part of his role is talking to smart people inside and outside his firm who enhance his worldview of the markets and the constantly evolving software landscape. He's realized that no matter how many numbers you look at, business success always comes down to the people. Outside of his role, he enjoys running, boxing, and writing a weekly business newsletter at mostlymetrics.com. CJ, thank you very much for being my guest on today's episode of CFO Weekly.

CJ - 00:02:00: Yeah, thanks for asking me to come on. Anytime I can jam out on metrics and finance stuff, I'm game.

Megan - 00:02:05: Yeah. So today we're going to be talking about the annual planning process and the metrics that go into building a good budget. And I'm excited about the opportunity to learn about you and your thoughts and experiences with this topic. So let's jump right in.

CJ - 00:02:19: Let's do it.

Megan - 00:02:20: Before we get into the meat of it, can you just kind of walk us through your career just so that the audience has a little bit of an idea of where you've been and what you've done?

CJ - 00:02:32: Yeah, sure. So I'll start off where I am now because I'm a CFO at a tech company, a Series C vertical software company. But back in college, I had no idea that that was a good job that you could help run technology companies from the finance angle. I thought that you had to be basically an engineer or someone who could code in order to work at tech firms. So out of college, I went to Boston College and I worked for PwC in the Big Four. I did consulting there and our clients were private equity clients. And we would do due diligence in their part. And I eventually got a chance to go over to that team. And so I worked at a private equity shop two years. And that's kind of where I learned about business models and what made companies go. And I got what I call the SaaS bug. I became obsessed with subscription businesses and basically how they resource their companies to bring their products to market. And I kind of hit this wall where I was like, I could go back to school, get my MBA. But I kind of liked making money at that time. I didn't want to put my career on pause. And honestly, I think I was like, maybe like a B minus on the private equity side, which was something that looking back, I was glad that I was honest with myself. Something that's hard to do sometimes in your career. And so I made the leap to the operator side. And that's where I started helping to scale software companies. So this is my third software company that I've helped to grow. Most of the companies that I've worked at have been in what you call hyper growth. So that means over 50% growth per year. And I started out building out FP&A teams, financial planning analysis. But I've also worked in sales ops roles, chief of staff roles, and now CFO.

Megan - 00:04:02: How did you make the leap from finance to operations? Sometimes it's hard for people to do.

CJ - 00:04:09: Yeah, I mean, I think I've always been kind of a people person where my EQ is a little bit higher than my IQ, even though I try to be book smart. And I enjoyed talking to people within the business, whether that be the person who runs product marketing and just learning like, hey, what are we actually selling here? Which is a question that you may ask at a tech company. Like I worked at a backup and recovery firm. I'm not really sure how that works until I talk to someone within New York who does. And then I also wanted to learn how to run a sales team. So I wasn't on the sales team per se, but I was helping to build out the quota models and I was helping to make sure that deals came in on time and forecast pipeline. And so it was really following my curiosity, but also following where there were open spots within New York that I felt that I could move up. And sometimes I think people get confused that you have to walk this cookie cutter path. Like I go here for six months and then I get promoted to this role with that role. What I found is within tech firms, I could bounce around and still be going directionally up over time. Sometimes that was doing strategy and operation work.

Megan - 00:05:09: And you played key roles in scaling companies and driving revenue growth. So outside of the numbers, what do you think is the most critical factor for long-term business success? And how do you integrate the people-centric philosophy into financial strategies?

CJ - 00:05:24: I think it's communicating what the story behind the numbers are. I've often messed this up where I try to blind people with science, and I didn't really think about it, so what or what it meant to them. So I think it's just making the numbers tell a story in a way that's impactful to whoever your audience is. And you usually have to cater to that. If I'm talking to the engineering team, it may be the same numbers, but it's a different way that I'm conveying that information than to the sales team who may be a little more coin-operated in terms of what the incentives are. So I would say communication has been a big block, and then dovetailing that into storytelling.

Megan - 00:05:57: Yeah, it's really interesting that you mentioned storytelling because I hear like the CFO role described so often as a storyteller.

CJ - 00:06:06: It's true because I think you're in this unique position where not only do you have purview or insights into what's going on in every single department because you see the numbers, but you also have the job of translating the macro to the micro. And what I mean by that is you see what's going on outside the company and you're the person who people look to say, hey, how does the economy affect us? How do interest rates affect us? And all those are like the makings of a really good story. There are a lot of plot elements that you can overlay if you do it well.

Megan - 00:06:34: And as CFO of PartsTech, what are the key financial metrics that you are prioritizing during your annual budgeting process?

CJ - 00:06:42: Well, I looked at three guardrails at first. So that's revenue, how much you make, productivity, which is your ratio of people to the revenue and how much you spend, and then profitability at the bottom. So how much you make or lose. So with those three guardrails in mind, I'll often start talking to the CEO like, hey, listen, by the way, we have a three-year plan at any given point in time. So this is usually a continuation of that. It's not just like a blank piece of paper. Let's start now. This is what we had in our plan for revenue, productivity, and profitability. How does what we're seeing today out in the market impact our view on that? How do we want to change it over time? And honestly, what do our shareholders value at any given point? Is it where we want to push forward with maybe potentially investing ahead of our growth? Or is it something where we really want to show productivity? So I think there's a point in time where you want to try to optimize certain metrics. But you have to look at it through the view of revenue, productivity, and profitability in some way, shape, or form.

Megan - 00:07:37: And annual planning requires collaboration across departments. So how is it that you ensure effective communication and collaboration between finance and other teams to create a comprehensive budget?

CJ - 00:07:50: That's a great question. And I think it's not creating a budget. It's coming up with a plan and a plan that other people have input into. So a plan that's developed together and it's not something people receive. Like even as kids, we never like being told what to do. Like newsflash, adults don't really either. They want to have a hand in shaping what they're going to build in the coming years. And I find that giving people the autonomy to work within a budget envelope, I call it, helps them feel buy-in to the plan. And this doesn't mean that you have to give every owner like a P&L to manage. But it does mean that, listen, we're going to come up with an envelope of costs. And maybe your headcount will be plus or minus one or two here. You can repurpose that cost elsewhere. So that's one component to it. And then I also think that you want to make sure that people understand the why behind the org's objectives. Because if they understand that it's a lot easier to say no to people, right? You don't want to be the CF. No, you want to be the voice of reason to listen, we all as a group agreed. These are the things I am going to prioritize. If we do that and we don't have enough for this, do we still think that this is the most important thing to do?

Megan - 00:08:54: And in your experience, what are the common pitfalls that companies fall into during that budgeting process?

CJ - 00:09:00: Oh, wow. So, I mean, there are really small ones like for getting to budget for employee laptop refreshes. I think I've forgotten that three out of the last five years. And then there are larger ones like not knowing how to forecast your hosting spend. Like is our AWS or GCP bill, is that linked to revenue growth or is it really linked to something, a proxy underneath that? Like maybe active users, which don't exactly move in tandem. But I think, to be honest, like 80% of the costs at tech companies, 75 to 80% walk on two feet. So it comes down to getting your hiring right. And out of the remaining 20%, I think at least 10% is linked to headcount still in some way. So whether that be through a per seat license or per seat cost. So the biggest mistakes are around hiring. And that's why you want to make sure that you work really closely with the recruiting function as well. It's funny, I think recruiting people in a lot of ways need to be managed functionally like a sales team where they have a certain capacity to hire. And that's going to be not only the biggest driver of cost, like I said, but also it's the atomic unit for revenue within your model if you do have a field sales motion. So in my mind, it really all comes down to headcount. And then the rest is either linked to it or it's kind of window dressing.

Megan - 00:10:11: And let's talk about data analytics for a minute. How do you incorporate this into the budgeting process? Then, how do you inform your budget decisions and make accurate forecasts for the upcoming year using this information?

CJ - 00:10:26: Yeah, totally. So I think there's a bit of a crawl walk run here. So you have your basic building blocks when you start to build a budget. The first building block is really your current headcount roster, like who are the butts in seats today? The second building block is what's my open headcount roster. So who are we actively recruiting for? And then the third building block is going to be my September P&L. So if we're on a standard fiscal year, I'll have nine full months done, I'll have three months open. So that'll be kind of the line I draw on the sand, for lack of a better term. And then the fourth building block is going to be the historical sales rep attainment. So I know what is possible in terms of how much capacity I have on board before I start to hire new people. And then the fifth building block is the preceding 12 months of historical costs. So these five building blocks are kind of my data foundation for everything in order to build the forecast. And then the analytics come into play. And this is kind of the run part of when you start to do scenario planning around marketing pipeline and sales rep achievement. I think you can use analytics to look at your install base and forecast not only your propensity to up-sale, and map to rep accounts, but also who might churn in her year renewal rate. So what I see a lot of companies getting fancy with these days is after they get down those building blocks, they start to look at how much can we renew next year? How much of our revenue is essentially in the boat already? And you can also map out what a kind of an ideal customer profile looks like based on cohorts that you have in the past. So that's where I see analytics coming into play.

Megan - 00:11:49: And AI. I mean, no conversation would be complete these days without a mention of it. But are you guys doing anything with it? And if so, how are you looking at AI at the moment?

CJ - 00:12:02: I think a lot of companies were doing stuff with what we call AI now, but they really just weren't calling it that. And a lot of it is just digesting and homogenizing existing sales rep achievement data that you have. But to answer your question, we're not using any AI within the expense forecasting process, but we're definitely using it to look at top line trends and industry trends. I think where AI will be the biggest needle mover for revenue forecasting is around seasonality. And that's looking more at how the macro impacts your business internally.

Megan - 00:12:32: So speaking of macro, change is the only thing that's certain these days, and there's an awful lot of it. So how do you incorporate flexibility into your budget to adapt to changing market conditions and unforeseen challenges?

CJ - 00:12:49: Constantly course correcting, depending on what you're seeing. He can still take three lefts and still go right, if you know what I mean. I have a podcast, it's called Run the Numbers, and I interview a lot of CFOs. And on Run the Numbers, they always tell me that, listen, I was at this massive publicly traded company that you've heard of, or I was at this incredible company, and we got everything wrong in terms of where the revenue would come from, but we still made up that total revenue line. I'm like, well, how did you do that? They said, well, we stayed flexible in our forecast of how the resources would roll up to drive that revenue. So sometimes you may get a head fake from the market of like, oh, I think the customers really want to buy it this way, but it ends up being that way. And so you have to be honest with yourself and also quick and decisive in terms of realigning what you pay for in order to drive that revenue over time. But I agree, the only constant is change. And I think, I know this podcast, we're talking about budgeting, but I also do think we take too much time on budgeting. It's kind of like a suitcase. It ends up just being filled up with as much as, the space will allow for it, even if it's a two-day trip, somehow you always end up with five shirts in there. I think annual planning is the same way in many respects, that as much time as you give it, you'll take that up. But really where the rubber hits the road is using your efforts to course correct along the way.

Megan - 00:14:01: And I'm just curious, in the time that you've been doing that podcast, what surprises have there been or what have been some of your favorite episodes or topics?

CJ - 00:14:12: Totally. My favorite episode in terms of just frameworks was with Jim Cook, who is a founding member of NetSuite and the CFO of Mozilla Firefox. And he gave me the quote that perfection is a prison. I think that finance people, we want the numbers to be perfect and we beat ourselves up and don't give ourselves enough grace to make mistakes and learn. But what he taught me is that if you're not willing to make mistakes, that's kind of where the learning ends and you're actually holding yourself back. That one was powerful for me. And then I'm just a huge business model nerd. So anytime that I can dig into how companies make money, I interviewed Scott Harless and CFO of Spirit Airlines. I've always been fascinated by the low cost model and how that works. And then on the tech side, a vertical software company. So I interviewed Jeff Cooper of Guidewire, one of the top insurtech companies out there and spoke about how you become kind of the operating system for an industry. So for me, it's diving into what makes these CFOs tick, but then also figuring out what makes their business models wrong.

Megan - 00:15:13: And how do you make it, okay, for your own team to fail? How do you make it a safe environment for people to make mistakes and learn from those mistakes and be agile?

CJ - 00:15:24: Yeah, I think there are two types of mistakes. There are like the technical ones that are like, core to the business that you probably have less of a bandwidth for accepting those just because it's what we do day to day. But like if someone is pushing the envelope to take on more responsibility and put themselves out there, especially if it's like I want to give a presentation or it's public speaking or I want to take on a new initiative and be the go to person. Like I will never fault a person for wanting to increase their surface area of responsibility. And I think I've learned to be honest with people who are either really good with me failing at times or really bad. And I also know about myself, like I will get in my head if I make too many mistakes in a row. So I try not to beat people up. I always tell them, hey, like I won't say I'm proud of you for making that mistake, but I'll say, hey, I really like that you took that shot on goal. Don't be afraid to take another one. And I think if you say that to somebody with the first mistake that they make on your team, they're like, wow, this guy actually wants me to push the envelope and be a pacesetter here. And that's culturally something that I try to instill in my finance team set. I want you to make the news, not report the news. And that sometimes requires pushing the envelope and getting outside your comfort zone. But when they do make that first mistake, tell them, listen, hey, I've done that, too. Please keep taking shots.

Megan - 00:16:40: And with technology and just how quickly things are changing, what skills are you looking for in your own team? When do you hire? What are the most important skill sets to you?

CJ - 00:16:51: Yeah, you kind of hit on it that things are changing. So I look for financial athletes. And what I mean by that is I can throw a problem set in front of them and they'll come up with an approach to try to solve it. So I think it's less so these days of just getting a mathematical formula and coming to an answer. It's being able to operate within something that's ambiguous. And a lot of this comes down to finance people running the business cases behind things like a partnership or a product line launch. You have to look more outside of just what the expenses are and add stuff up. It's more how do I make something that's not that clear into something that people can understand and then resource. So I look for financial athletes who have done things in the past who on paper, it sounds like, oh, that's kind of a wacky project they worked on. Or oftentimes I'll ask them to just explain how their past company made money. And from that, I can tell, like, are they just talking to me like this is just a pure accounting way of doing things? Are they actually talking about how a company sells from soup to nuts and brings their product to market?

Megan - 00:17:50: And getting back to budgeting, but in your opinion, what are the most critical non-financial metrics that should be considered, especially for fast growing companies?

CJ - 00:17:59: I think active users in any given period. And active users have to be linked to any action that demonstrates the customer is getting value from the platform. It's not simply just like I was actually talking to Lily Yang, the CFO of Strava. I'm an active runner. I love their platform. And on the podcast, we were talking about the concept of active users and how to segment them over cohorts over time. And then the reactivation efforts you can use to expand how much they buy from you. And so active users, I've taken it upon myself to better forecast because it helps me get comfortable with future revenue streams. And then it also shines a light onto potential churn patterns. Because in a lot of these businesses, you're kind of looking at your revenue as like the snowball that you want to increase over time. And you want to make sure that certain parts aren't melting. And I think the atomic unit there comes back to active users, which may not have a dollar attached to it yet. But you can use that to forecast.

Megan - 00:18:50: And when you're forecasting, how do you approach the allocation of resources within the budget to make sure that you're supporting innovation and growth initiatives, but still ensuring that the wheels stay on?

CJ - 00:19:02: Yeah, that's a great question. And it's something I wrestle with myself. And what I've come to is that you need to sit down with your CTO and your CPO, Chief Product Officer, and split R&D spend into three buckets. So I maintain the current stuff. So that's like keep the lights on, make sure that our product works. Enhancing existing features. It's the second bucket. And then three, creating new products. And I think it's this third product that you're poking at here. And I think the key is to make sure that there's a business case that actually links back to whatever the company is trying to achieve at a high level. A lot of times, this third bucket becomes like this weird incubation zone that doesn't really attach to any of the priorities. So I think it's making sure that you can tie back to whatever the company has on its larger roadmap as a company, not just making tech. And if it makes sense with the current user base they have to potentially upsell and cross-sell.

Megan - 00:19:50: And one of your roles is that you are an advisor at Maxio. So what insights or best practices do you share with B2B SaaS companies regarding annual planning and budgeting that would differ from traditional budgeting approaches?

CJ - 00:20:05: Yeah, I love working with Maxio because they have all these insights on billing data and net retention over time. I think that the biggest takeaway I have is to use benchmarks in a sparing way. And what I mean by that is to make sure that you're benchmarking yourself against companies that are actually relevant to your business model. So if you're a marketplace, don't compare yourself to enterprise software. If you're a vertical SaaS company, don't compare yourself to a horizontal CRM like Salesforce. And also compare yourself to companies that are of the same stage as yourself. So my favorite metric is revenue per head. I'm not going to compare the revenue per head of a company at $150 million to a company at $50 million revenue. So making sure that benchmarks are relevant to whatever stage you're at, because otherwise you'll try to be something that you're not.

Megan - 00:20:50: Where do you advise getting those benchmarks? I mean, sometimes those are hard to find.

CJ - 00:20:55: Oh, it's funny you said that actually. So today I did a post, mostlymetrics.com. And it was all my favorite benchmarking reports. So I went through and listed all the best ones that I use within my annual planning process, whether it be from Battery Ventures, Bessemer, all different VC funds that put these out, as well as some great software companies that have this rich data layer that they can pull apart. But if you go to mostlymetrics.com, you'll be able to find all my favorite benchmarking reports for whatever type of business model you use.

Megan - 00:21:23: Wow, that's cool. What a perfectly timed quest. Something you did today, and looking ahead. How do you see the budgeting process evolving in the next few years, especially with all of the advancements in technology and data analytics that are going on at the moment?

CJ - 00:21:39: Oh, wow. That's a great question. So I have a feeling that the FP&A tools we use today will become more like BI and analytics tools. So I think a lot of the FP&A tools are basically just sitting on top of the application layer, but there's a way for them to be better embedded with Snowflake, with basically your data lake underneath. And will be able to marry not only the ERP data that FP&A tools touch today, but also the CRM data for sales and then the product data. I said before, active users, that's coming from the product side. So taking those three buckets of data, marrying them all, and then being closer to it, not just sitting on top of it. So I think that we're going to get a lot better predictive forecasting as well. And that's where AI will come into play with helping to map what your ideal customer profile is, looking at pipelines, and then aligning reps to quota models.

Megan - 00:22:28: And I lied, it was not my last question, but this is. How are you preparing yourself and your team for the future? What sources out there are you looking to help you stay ahead of the curve?

CJ - 00:22:40: I think it comes down to listening to peers who are going through similar things. Like you can't just digest information from people who haven't been there and done that. And so podcasts like yours are a great place to get information. And then talking to people, whether it be for dinner or a conference who are at companies of a similar stage or even one kind of one stage ahead of you. That helps because listen, in finance, like we're not exactly recreating the wheel with a lot of the stuff we do. And there's somebody out there who's done this before. That's why I love having a podcast because I can ask questions selfishly to be like, hey, this is actually what I'm dealing with right now. Like I've never ran a secondary for employee stock or how do I forecast for this new building lease that we could be taking on? And so like in finance, you have to admit sometimes that some of it is innovative, but some of it is like there's someone smart out there who can help you. You just have to ask.

Megan - 00:23:30: CJ, thank you so much for being my guest today.

CJ - 00:23:33: Of course. This was a blast.

Megan - 00:23:34: Yeah, I really enjoyed speaking with you. And thanks for finding the time to be here with us today to share your experience and knowledge. And I wish you all the best.

CJ - 00:23:43: Appreciate it. Thanks, Megan.

Outro - 00:23:44: And to our listeners, please tune in next week. And until then, take care.


In this episode, we discuss:

  • The role of storytelling in finance

  • Key financial metrics to prioritize during the budgeting process

  • Common pitfalls companies face during budgeting and how to overcome them

  • The integration of data analytics and AI into budgeting

Key Takeaways:

Turning Tech Data and Budgeting Mistakes into Stories

Long-term business success is more than just about the numbers; it's about the story they tell. A great leader knows how to translate data into meaningful insights, tailoring the message to resonate with each audience, whether it's engineers, sales teams, or stakeholders. Combining communication with storytelling allows you to bridge the gap between the macro and the micro, turning numbers into a compelling narrative that drives understanding and action.

turning budgeting mistakes into stories Quote

“It's just making the numbers tell a story in a way that's impactful to whoever your audience is.” According to Gustafson. - 05:09 - 06:34

From Budgets to Buy-In

Effective annual planning relies on collaboration, not just creating a budget but developing a plan everyone contributes to and feels ownership over. People are more likely to commit when they've had a hand in shaping priorities. Start with a clear "budget envelope" that allows flexibility for adjustments, like shifting costs or tweaking headcount. Ensure everyone understands the why behind organizational goals so it's easier to prioritize and say no when needed. Also, remember that hiring drives most costs and outcomes. Align closely with recruiting, treating it like a sales function with defined capacity and impact.

CJ Gustafson, CFO at PartsTech Quote

“It's not creating a budget. It's coming up with a plan and a plan that other people have input into.” Gustafson said. - 07:37 - 10:11

Mastering Budgeting with Analytics and AI

To create accurate forecasts and make informed budget decisions, start with five building blocks: your current headcount roster, open roles you're actively recruiting for, your latest P&L, historical sales rep attainment to measure capacity, and the preceding 12 months of costs. Once these foundational elements are in place, use data analytics to dive deeper into scenario planning, like analyzing marketing pipeline performance, sales rep achievement, and customer churn risks. For an extra edge, leverage AI to uncover trends in seasonality and macro impacts, helping you refine revenue forecasts and set a smarter course for the year ahead.

Quote mastering tech budgeting

“I think AI will be the biggest needle mover for revenue forecasting around seasonality, and that's looking more at how the macro impacts your business internally.” Gustafson claimed. - 10:11 - 12:32

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