Creatingan effectivebudget

1. Creating an Effective Budget
CFO Playbook for Private Companies
Jason Macatangay
VP Finance and Treasurer
November 21, 2014

2. Discussion Topics
• Threadless introduction
• Challenges to an effective budget process
• Putting it all together - Threadless case study

3. Threadless inspires the creative
minds of the world to make,
support and buy great art.
What’sThreadless?

4. How doesThreadlesswork?
Artists from around the world submit designs, the Threadless community scores each
design and the best of the best are printed and sold. New designs are chosen for
print every week and the winning artists are paid handsomely and take home big
cash prizes.

5. Buildingan EffectiveBudget Process
What are some challenges to an effective budget process?
● Gamification and Lack of constraint
● The entrepreneurial mindset
● Risk and opportunity

6. Buildingan EffectiveBudget Process
Basic steps to an effective budget process (?)
1. Set goals that will enable us to grow
2. Break the goals down so that there is clear ownership and accountability for each
goal by a specific team
3. Refine goals into measurable targets
4. Figure out how many new people (or other resources) required to hit the targets
5. Estimate the cost of the effort
6. Benchmark against the industry
7. Execute
source: Ben’s Blog, How to ruin your company with one bad process, July 22, 2014
http://www.bhorowitz.com/how_to_ruin_your_company_with_one_bad_process

7. Gamification and Lack of Constraint
● Does your budget process encourage its participants to ‘game’ the system?
o Scope expansion on company goals
o Need to spend or else we lose share
o Zero-sum game approach
● What are the ground rules? Limits, constraints?
o Company culture as constraining factor
o Run rate increase with operating expense budgets
o Earnings / Loss / Cash burn expectations
o Engineering growth rate and engineering headcount relative to other
departments
o Leave room for risks and opportunities
source: Ben’s Blog, How to ruin your company with one bad process, July 22, 2014
http://www.bhorowitz.com/how_to_ruin_your_company_with_one_bad_process

8. TheEntrepreneurial Mindset vs. TheBudget Process
The challenge of the future:
“What important truth do very few people agree with you on?”
The entrepreneur’s version of this question:
“What valuable company is nobody building today?”
source: Zero to One: Notes on Startups, or How to Build the Future, Peter Thiel, with Blake Masters

9. TheEntrepreneurial Mindset vs. TheBudget Process
Seven Traits of Successful
Entrepreneurs*
● Tenacity
● Passion
● Tolerance of Ambiguity
● Vision
● Self-belief
● Flexibility
● Rule-breaking
source: Seven Traits of Successful Entrepreneurs: Joe Robinson,
Entrepreneur.com Jan. 10, 2014
23 Things Every Entrepreneur
Must Know
● The best way to predict the future is to
create it
● Action trumps everything. Stop
thinking and get underway.
● Here’s the only market research you
need: Get your product out in the
marketplace and see if it sells.
source: 23 Things Every Entrepreneur Must Know: Paul Brown,
Entrepreneur.com Sept. 22, 2013

10. TheEntrepreneurial Mindset vs. TheBudget Process
What Entrepreneurs Really Want*
● How can I take this step more cheaply (and/or by using someone else’s
money)
● How can I do it faster (so I don’t have to invest as much time)
● How can I do it better than initially planned?
* source: Entrepreneurs are Calculated Risk Takers: Paul Brown, Entrepreneur.com Nov. 6, 2013
** source: Managerial Accounting: Creating Value in a Dynamic Business Environment by Ronald W. Hilton 9th edition published by
McGraw-Hill
What a CFO Really Wants to Accomplish with a Budget **
● Planning, Communication, Resource Allocation, Operational Control,
Performance Evaluation and Incentives

11. Risk and Opportunity
CFO as Risk Manager
● How can I effectively influence and lead my organization towards making
balanced business decisions?
● How can I effectively capture business plan risks into the budget?
Steps you can take:
Balanced decision-making:
● Link risk to business strategy
● Move all the ‘thrashing’ to the front
● Take small measured steps
● Perfect vs. good enough
Budgeting implications
● Is there any bias towards risks and opportunities in the budget?
● Budgeting process mirrors decision-making process

12. ThreadlessCaseStudy
Overall Company Goals
• Top line growth vs. bottom line profitability
• Focus on company’s value drivers
Constraints and limiting factors
• EBITDA targets
• Business seasonality
• ROI requirements on customer acquisition and advertising
• Working capital
Business development opportunities
• Wholesale

13. Creatingan EffectiveBudget
THANK YOU!