Building your first department level budgets

You’ve spent months going back and forth with your CEO, stakeholders, and board. Finally, the high level company plan is set! Everyone’s aligned to the ARR and burn goals, and the assumptions and strategies behind them. Amazing - getting to this point is in it of itself an accomplishment! 🙌 For many early stage companies that’s the end of planning, and rightfully so.

In my experience, companies with less than ~50 employees can manage their plan without the need for detailed department level budgets. However, beyond that scale finance needs to give department leaders a structured way to see how they’re spending company money and how that fits within the confines of the plan you’ve all worked so hard to create.

Budgets, while typically perceived as a way to restrict department leaders, in fact do the opposite. They give leaders the boundaries within which they can make the decisions and tradeoffs that best empower their team. Poorly executed department budgets feel like a way to keep track of spend. Well executed budgets create autonomy and empowerment.

Yet building those first department budgets can feel daunting and overwhelming to that early head of finance. Where do I start? How much information do I share with department leaders? How do we support flexibility and autonomy while protecting the high level goals of the company? We struggled a lot imagining the first versions of department level budgets at Intercom.

After a lot of trial and error here’s the structure I found to work best. I share this in the hopes that any early finance hire trying to figure out how to share budgets doesn’t need to start from scratch.

For every department we applied a consistent framework - based on the simple distinction between recurring and ‘one-time’ spend. Budget could not move across those two categories. For example, a leader could not take $1 of their signing bonus budget (‘one-time’ spend) and use it to increase the salary of a new employee (recurring spend). Makes sense.

However, within their ‘one-time’ spend and recurring spend budgets, budget could move freely. For example, $1 from their signing bonus budget could be reallocated to travel and entertainment. Or, $1 from their new headcount salary pool could be applied as a raise for an existing employee.

Here’s how we structured the budgets then for every department lead.

• Recurring spend included budgets for:
  • New headcount salary.
  • Existing headcount salary - e.g. promotions and salary increases.
• ‘One-time’ spend included budgets for:
  • Bonus budgets - e.g. signing and spot bonuses.
  • Travel and entertainment.
  • Learning and development.

Why not just give a recurring and ‘one-time’ spend budget? Why go through the work of creating more detailed views within those categories?

We found that leaders needed some sort of baseline for the budgets to make sense. Salary increases should be in around this range. This enabled leaders to make tradeoffs with context - being intentional and deliberate about where they’d invest. But again, these subcategories were guideposts. At the end of the day, leaders were solely held accountable to recurring and ‘one-time’ budgets.

We of course had different, specific budgets for other categories managed with specific stakeholders. For example, we had a detailed hosting budget that our infrastructure team owned. We had a central software budget that IT and finance managed together. Marketing had a detailed program spend budget (not transferable to things like ‘one-time’ spend). Recruiting had a central budget for contingent and retained searches.

Ultimately I found the structure of our budgets to strike the intended balance. They provided clear boundaries within which leaders could operate and provided the flexibility to make necessary trade offs. This had the very nice consequence of shifting the conversation from “I need more budget” to “I can trade off this part of my budget.”