Date posted: 26/02/2019 10 min read

Accountants must get out of the back office to forecast revenue

Top-down revenue forecasting can backfire, so try bottom-up budgeting where finance and business units set targets together.

In Brief

  • Revenue budgeting is becoming more complicated, and accountants must be realistic in how they develop and own revenue targets.
  • One option is bottom-up budgeting, where divisional budgets are combined to determine an overall company budget, or to validate the chances of meeting a company budget.
  • Bottom-up budgeting is not a new approach, but often it is not fully implemented. It involves finance teams and business units partnering to set revenue targets and budget goals.

By David Boyar FCA

It’s a very common story, with a standard ending. A leadership group signs off on a strategy they expect will achieve a certain revenue for the business. That message, and revenue figure, is then passed down through the organisation.

The revenue figure is broken up into chunks and given to different business units. Someone from the finance team sits with a business unit head and – like a teacher in a classroom – tells them their target.

In many cases, people believe they can achieve it. But then they don’t.

Sometimes a finance person will follow up and do some digging to find out what happened, usually to explain to the leadership group where things went wrong. But it’s too late: the budget was missed.

“Bottom-up budgeting isn’t a new idea, nor is finance-business partnering, but there is urgency around us embracing these ideas and broadening the accountant’s role.”
David Boyar, Sequel CFO

This story repeats in similar ways for businesses of all sizes, and highlights a real problem around how revenue targets are developed and owned.

And revenue budgeting is becoming more complicated. The subscription economy, for example, can see a monthly amount of $10 charged instead of, say, $100 upfront. It’s changed the way customers buy music (Spotify), TV (Netflix), razor blades (Dollar Shave Club), food and meals (Blue Apron, HelloFresh). But subscriber churn rates are high.

The solution to this revenue forecast prickle is not new, but often it’s not fully implemented. It involves bottom-up budgeting, where divisional budgets are combined to determine an overall company budget, or to validate the realistic chances of meeting a company budget. It also involves making finance teams and business units partners in setting revenue targets and budget goals.

Top-down forecasting vs bottom-up budgeting

David Boyar FCADavid Boyar, Sequel CFO

Top-down forecasting backfires if it does not realistically consider a business unit’s resources or ability to meet the revenue target. While leadership groups must be involved in setting targets, they need insight from both the finance team and business units.

This is a huge opportunity for engagement between the finance team and business units. Both parties can develop a deeper understanding of each other’s role, and the business can become more unified.

The finance team should:

  • Explain where revenue is currently coming from
  • Explain the impact of new revenue-driving strategies
  • Test the ability of the business unit to meet strategic expectations.

Members of the business unit should:

  • Explain their activities to finance
  • Include finance in the revenue strategy phase of their planning.

Such collaboration also means there’s a bigger chance of non-finance people owning their financial results. If that happens, then business unit managers and division heads are more engaged with doing their numbers, rather than resenting having to do a pile of “admin work” they perceive as benefiting someone further up the food chain.

When finance and a business team partner in planning, finance is no longer seen as being in the business’s “back office” but as a valued, trusted partner.

However, this won’t be achieved unless we, as accountants, change our mindset about what our role is. It’s not only about getting the numbers right; it’s about being able to tell others, in plain language, the story that those numbers show, and what can be done about it.

Accountants must access the business front line

I recently spoke with Nicolette Maury, vice-president and managing director of Intuit Australia (owner of QuickBooks), about the way accounting is changing.

“Australian accountants are increasingly adopting a strategic business advisory role,” she says. “Business leaders and company owners are seeking deep insights on how their business is performing, where it can improve and how they can, for example, grow and scale. To do this, accountants need direct access to the front line of business and not only the back office.”

Capacity to have these deeper conversations within the business may be aided by automation of some of the finance team’s tasks, and tapping into cloud tools that enable faster analysis of data and generation of insights.

With this number crunching and visualisation automated, the finance team has both the time to work with leadership groups and business units, and the clear mental space needed to come up with solutions to problems.

Changing the accountant’s role

Bottom-up budgeting isn’t a new idea, nor is finance-business partnering, but there is urgency around us embracing these ideas and broadening the accountant’s role.

The OECD has listed accounting in the top 20 industries at risk of mass job losses due to automation. To avoid this, accountants must reskill, re-tool and embrace tech adoption. We need to be seen as value-added members of the business.

The future of work is currently being planned for the role of the “accountant”. If we prove our ability to change and engage, we will control what the word accountant means to business owners. But if we keep doing what we are doing, we will let others shape our future, and be excluded from the conversation about our own futures.

And that option is not one a real business leader should choose.

How to be an accountant of the future

1. Understand that an ability to present and communicate our work is what influences decision, not just getting the numbers correct.

2. Project management of information flow throughout the business can be our responsibility if we need new information.

3. Planning, budgeting and forecasting are essential skills.

4. Creativity means an ability to find, recommend and plan alternative options for business leaders.
5. Most of all, have a desire to learn.

Read more:

See David Boyar’s Melbourne TEDx Talk from August 2018, “A case for listening to your accountant”

Watch it here

Join us at Accounting Conference to explore the finance business partnering model in action.

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