Budgeting, Planning and The 4th Quarter Effect

Matthew Dziak

The 4th Quarter Effect in Business

Clutch performances, the ones that define greatness, leave teammates and executives in awe and bring about references amongst fans and pundits to players as the greatest of all-time (GOAT). Even if you are not an avid American Football fan, you are likely familiar with Tom Brady. 

Despite your team allegiance, fans can all recognize greatness, and Brady is synonymous with clutch performances, especially in the fourth quarter. Over his career, Brady tallied 55 game-winning drives (at the time this article was published), including seven Super Bowl victories - both NFL records. 

The ability to stay vehemently focused on the objectives, even when the chips are stacked against you and time is running out, is a true mark of greatness and one that translates to the world of business, too. Like Brady, top-performers in finance, product development and sales find a way to get the job done and be the difference maker when it matters most. 

This is known as the 4th Quarter Effect. 

This isn’t a matter of procrastinating, where tasks or deliverables are put off, instead it’s a heightened focus to go above and beyond, backed by motivation and incentive.

When the 4th Quarter approaches, the pressure is at its peak, yet top performers find a way to get the job done and reach the targets. It’s less miraculous and more mindset - one that is established and managed by Finance. The projections set by finance are necessary to hold teams accountable and when the target is in sight, the best of the best rise to the occasion. 

Imagine your top sales performers at your Company. They find a way to hit or exceed quota, even when resources are sparse and others are missing their mark. Even in the final months of the year, great salespeople overcome dwindling pipelines, prospects punting until next year, and the winter holiday frenzy to not only hit their quota but the Company’s objectives as well.

Annual Budgeting Process Still Holds Value

There’s a growing desire to replace annual budgets with rolling forecasts, and although our experienced team of finance executives disagree with this approach, at face value it’s understandable why one would consider it. 

First, we encourage finance to forecast on a rolling monthly basis at a detailed level, but not as a means to avoid a budget. But if you attempt to replace your annual budgeting process with a rolling forecast, you strip away the potential for added motivation to reach the targets set for the year.

Unfortunately for most, curating a company budget takes entirely too long and leaves battle scars on even the most advanced finance professionals. 

In a recent study of 150 finance professionals, we found that 54% of Companies spend three or more months on its budgeting process.

Despite budgets being a fundamental of mature finance functions, dedicating an entire quarter or more to the process greatly diminishes your capacity for more impactful analysis and business partnering. In an environment where remaining agile and keeping up with the growing competition is non-negotiable, you must find ways to increase efficiency and define scalable processes. Focusing on your company’s budgeting process and following these best practices will make it feel more like a sprint, than an arduous marathon.  

Budget Target Setting and Stretch Goals

If there’s one thing that is concrete with budgets, it is that they force decisions to be made, which for many Companies isn’t as easy as it sounds. If there aren’t achievable metrics to hit, and all stakeholders aren't aligned, budget owners are predisposed to punt on new initiatives and campaigns in an attempt to play it safe. 

There are 3 primary purposes of an annual budget:

1. An annual budget clearly defines targets for everyone to focus on

2. Keeps everyone in the Company aligned and motivated 

3. Evokes the 4th Quarter Effect – rising to the occasion before time runs out

When setting annual targets, stretch goals are common targets to set that would typically require everything to go as planned and work out favorably - which obviously is never the case. Nonetheless, the act of setting these goals and working towards them as a team is a practice in getting the most out of everyone’s efforts, and going above and beyond. Just remember when working with the executive team and board, the budget shouldn't be unreasonable in nature, regardless of the desires.

For example, founders at growth SaaS companies might look to set aggressive targets in route to a milestone annual recurring revenue (ARR) mark, like $20, $50 or $100 million. The desire for these milestones are typically rooted in valuations and favorable future rounds of funding, but the targets are also meant to motivate the team to do its part. 

To get there, a company-wide plan is necessary to align product, sales and marketing efforts, while investments are allocated optimally to grow the top line.  As a business partner, it’s finance’s responsibility to forecast the possibilities and advise budget owners on potential outcomes. This requires collaboration and an understanding of the needs and expectations of budget owners such that resources are allocated based on data-driven analysis and insights. 

Which budgeting process is best for your company? - FutureView Systems

Using Forecasts to Help Build Budgets

If you are in charge of managing an annual budget, it doesn’t mean you stop planning throughout the year. This is where your forecasts come into play. Forecasts are meant to measure where you stand in relation to your targets and guide resource allocation to stay on track. 

As a key contributor to the business, finance can’t be bogged down by inefficient budgeting duties when other reporting and analysis is required by the executive team. One of the many advantages of a regular monthly forecasting process is that the repetition of iterating on forecasts each month is likened to a small scale budget. 

This not only gives finance a great starting point to understand the needs of each business unit it collaborates with, but also builds the necessary skills to expedite the budgeting process so it does not take up 25% or more of your annual capacity. 

Be the GOAT of Your Finance Function

Ready to be the GOAT in Finance? You are well on your way, and we can help get you there faster. If you are looking for solutions to manage a detailed and decision-based budget process integrated with an accountability-based forecasting process so that you achieve your goals and become a great company, the FutureView Platform might be for you. 

Schedule a demo of our FP&A Platform to see how you can collaborate with stakeholders, while centralizing your disparate systems and being the impactful difference maker you were brought on to be. 

Budgeting and Planning Processes For Your Company