By Michael F. De Stefano, CPA

In our organization, Lucknow-Highspire Terminals, budget season occurs in the fourth quarter of each calendar year. Historically, budgets were not something that our company prepared and measured our results against. Our owner was the sole shareholder, and at the time was not beholden to outside stakeholders or bank debt that required budgets to be submitted externally. Operating results were ratable, and we were going through what seemed to be a perpetual growth period, where the focus of the employees was on operations rather than budgeting. That held true for the finance department, too.

Those days came to an end when the company was sold in April 2015 to a private equity company. Outside investors and shareholders became the norm, and new bank agreements required annual budgets to be submitted. Additionally, our company was part of a larger investment fund with other companies, including a parent entity. Budgeting was here to stay.

As the financial lead for the business (CFO of the old company; vice president of finance of the new company), there was an element of excitement in getting to work on, prepare, and manage the business with an actual budget in place. Without one, sometimes it felt as if spending (operating and capex) were out of control. The operating performance of the company improved every year, but there were no boundaries outside the owner’s desire for expansion and positioning the company to be the best in customers’ eyes.

With new ownership, we were expected to create, submit, and implement a budget, and regularly measure the company’s performance against that budget. All these processes are normal occurrences in most companies, but for our company this was new territory. Our challenge was not creating the numbers; it was figuring out how to shepherd the organization (a company with over $1 billion in revenue) through a process most were not familiar with, invested in, or, in some cases, even cared about.

At the beginning of the ownership transition, we were assigned a consultant who helped us through the process. In subsequent years, we were asked to work with corporate analysts from the parent company in developing the budget. Each had its own challenges to navigating, but in either instance the budget needed to be developed from within our organization. This involved multiple coworkers across many different departments. It was often viewed as an added burden, as each employee involved already had their own job assignments and responsibilities, which was their primary focus.

Budgeting is usually rooted in the accounting or finance departments of an organization, but that department alone cannot build a budget without significant participation from all aspects of the organization, especially operations. One of the primary roles of my position is to shepherd the organization through this process. This was one of the hidden aspects of my job that has surfaced in recent years.

There seemed to be no end to the train of unwilling participants in the budget process, each of whom seemed to have his or her own reasons for this attitude. For some, the process was new and unfamiliar, placing them in an uncomfortable position. For others, the budget was viewed as a noose to hang oneself with later when unrealistic expectations were not achieved. There was also a faction of people who viewed the process as a waste of their time because they believed senior management will do what they want in the end anyway. In addressing the varying attitudes, the real skill that was called for from a financial lead was to be able to work with coworkers to change them from unwilling participants into partners who not only participate, but also take some ownership in the process.

One way or another, the budget has to be done; it is not an optional exercise in today’s business environment. In our case, an individual approach was needed for each person involved in the process. All these conversations take on a persuasive nature, trying to help people understand why their participation is necessary. As we grew closer to the budget process starting, there was a fair amount of signaling done that announced the process was going to be starting, and that there would be specific requests to each person as we got to the starting point. The signaling went on for a couple of weeks, and it involved group conversations during operational meetings and one-on-one meetings on the fly to reinforce the fact that cooperation would be needed. Even with all the preparatory conversations, the collective grumble could still be heard when the process started.

Here is a sample of the types of reactions:

• In some instances, the accounting department needed to prepare the groundwork for the first pass of data compiling so the process is viewed as less cumbersome. This helped individuals to not feel overwhelmed to the point where they did not know where to start. This also assisted in helping them to frame up the budgeted numbers in a format that was closer to the final format.
• For others, they want to build the budget from the ground up on their own, so accounting’s role was to help keep them on task and on schedule. This group would allow for a collaborative approach to the final number, often seeking input and feedback based on how they were preparing their projections and estimates.
• Some people need to be sold on the entire idea because they see no value to the budget. This required multiple conversations to convince them that it was in their best interest and what the worst-case scenario would be should they choose not to participate.
• Others needed reminding that the budget is a chance to have a say in how and where dollars are spent in the upcoming year. Lack of participation means they have no say in that process. While they may not get everything they hoped to receive, at least they can help prioritize what may be moved to the top of the list.
• There are some in an organization who are not resistant, but rather working in detail is not in their wheelhouse. These coworkers understand the goals and objectives, but there can be an issue with accuracy. Sometimes that is a bad formula or omitted assumptions being documented. The key here is to view their work as a rough draft, and join in along the way to help them mold the final product to be grounded in accurate details and assumptions.
• Some buy in right from the start and understand the process. These folks are your best allies and can really move the process along. They often help those who drag their feet or are unwilling by sharing their knowledge and experience. Being the person who is trying to marshal the entire organization's budgeted numbers into one larger outlook, you can be viewed as a task master. Your allies among the staff can help by being a less threatening voice to those in need of assistance.

While everyone is focused on their section and checking the box once their area is completed, that is not where the process ends. Bringing all of this together for the organization is both challenging and rewarding. As the process progressed over multiple weeks, we could see the budget coming together. At that point, before being presented to the corporate office, the process takes on a new level of review and scrutiny.

There is a sense of accomplishment in getting to the end of the preliminary budget. The fostering of a broad understanding was not on my radar when I first stepped into the CFO/vice president role, but is one of the more important tasks that my position entails. Being a manager that likes to help people become comfortable with the uncomfortable, the first budget process becomes a building block in the foundation for subsequent budgets and operational understanding. In shepherding the process, I hoped to instill a deeper understanding of the organization and the overall goals of the company.

Michael F. De Stefano, CPA, is vice president of finance at Lucknow-Highspire Terminals LLC. He is also a member of PICPA Council and serves on its Corporate Cabinet.