The cash budget helps find a balance between what are often the conflicting roles of senior leadership: the CEO’s job is to dream big, while the CFO’s job is to make sure the organization never runs out of cash.Ī 50% probability of achieving the revenue budget combined with possible expense surprises creates too much risk for venture-backed CEOs and CFOs. Recommended target: 50% probability of achievementĮxperience from Goldilocks Budget practitioners has shown that a revenue budget should be established with the target of a 50% probability of achievement in any given year. Step 2: A revenue budget that reflects reality From our experience, companies using the Goldilocks Budget reach their impressive goals. Even if they’re not fully achieved each year (and percentages say they won’t be), establishing more aggressive results will lead to better results.
Sales represent the most ambitious budget targets, falling into the “too hot” category, but this is for good reason: fast growth is the lifeblood of venture-backed companies, and clearly it is the sales and supporting marketing efforts that are the catalysts from that growth. Sales revenue in the Goldilocks Budget consists of new revenue and recurring and upsell revenue.
That mindset - striving for a great outcome - captures perfectly the approach that should be taken to sales targets within a Goldilocks Budget. The Goldilocks Budget provides an approach to achieving this balance while driving better results, enhancing communications, and transparency with your board and senior leaders.įollow along to learn how baby bear got budgeting “just right” using probabilities …
Budget “too cold” and you’re overly conservative, which can lead to not accomplishing any stretch goals. Budget “too hot” and you’re overly aggressive, which can lead to disappointment when goals aren’t met. The reality is that CFOs or finance leaders often face this exact situation when it comes to budgeting. Why are we mixing the age-old fairy tale Goldilocks and budgets?īecause it is a story everyone is familiar with and I’ve found the concept of “too hot,” “too cold,” and “just right” offers a simple framework to the often complex process of budgeting. What Goldilocks Can Teach CFOs About BudgetingĪfter working with hundreds of startups and serving as the CFO of Oracle, I’ve developed a practice I call The Goldilocks Budget, a probabilities-based approach which helps companies of all stages improve their budgeting process.
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