Free Your Money: Let Your Teams Make Their Own Decisions
We have awesome facilities, the best equipment, and pay higher salaries than the average. All 250 Nearsoftians have an unlimited budget for books, a kitchen full of food, and enjoy offsites, called Team Building Weeks, twice a year, oftentimes in fancy places, like Cancun.
This is possible because our culture is strong enough to trust our teams to manage their own finances.
Here’s how you can make better financial decisions, along with your team.
Who Owns the Budget?
We don’t use words like “boss” or “manager” in our community. This principle applies to spending money as well. If you need to make a purchase, you only need to talk it out with the corresponding team and its budget owner. Forget about the eternal wait of a manager’s approval!
A budget owner is a team, rather than an individual. These teams carry the responsibility of making the most of their annual budget. They know best how to use for their strategic plans and meet our teammates’ needs.
For example, let’s say that one of our recruiters wants to acquire a premium license for a LinkedIn account. Recruiting has its own budget, so that recruiter should talk about that expense with her team. If everyone agrees, they let us know, in Finance, to proceed with the purchase.
Not even “Finance” approves or denies your requests!
Make Your Money Work
Every department should deliver results. If they are not allocating their resources effectively, it will show. That is also the reason why the whole team needs to be responsible for their budget: every decision affects the whole team.
If the the money was controlled by only one person, the others may not know how it is being used. Furthermore, their ideas and contributions would be left out. Communication is key.
Although every budget owner keeps track of their expenses, we in Finance help the teams with this task. We have a monthly meeting where team reps join to report and learn how everybody is doing with their budget in the last month. We in Finance use to confirm that their tracking and our account of it matches.
Every team at Nearsoft has a budget, and its members are the owners of it. They have total freedom on deciding how to use it.
Like other companies, we guestimate our revenues and expenses for each year, and base our budgets on that. Of course none of us can see the future, so we are not exempt from surprises and opportunities that we cannot let pass. But we also have a budget for that!
In addition to the operating budgets, we keep one we call Unplanned. That budget is based on the number and amount of surprises that we’ve had in previous years.
Teams have total freedom on how to use their budget. But we still need to plan, estimate, keep track of expenses, and generally make changes as needed. Sometimes we even move capital from one budget to another if their respective teams agree.
Every little piece of information helps us to have a better financial picture for ourselves, for the months to come. Here are some of the key actors that take part in this “money game,”
Do you have a big expense coming up, or will it happen in six months? Will you need all of your money? Will you need more?
How’s the revenue pipeline? Are new client joining us? Will it be a three people or a team of 20? Is one of our current clients growing?
Are new developers joining us? When will this happen? What’s the forecast for salary raises?
Do you have all the information you need to approve the invoices? Is your payment coming soon or will it take a couple more days?
Are we incurring service renewals soon? Do you work with days of credit? Do you have all of our information to issue invoices on time?
These are some of the questions that allow us to adapt our forecasts to come closer to reality. Sticking to our budgets and sales goals let us enjoy the extraordinary benefits of working at Nearsoft. And, of course, all this hard work allows us to throw our awesome end-of-the-year party!
Budget decisions belong in the hands of the very people who are actually going to be affected by them. In the hands of responsible, well informed adult, it will lead to better resource allocation, self-accountability, and better results.
Here’s How You Can Do It
If you think this method could also benefit you better manage your finances, you can adopt-and-adapt as needed. If you use the more “conventional” way, you can do it, although it’s not going to happen overnight.
You can start by identifying the teams that are ready to take over the role of budget owners. Start by working with them on planning their upcoming expenses. You can together set the terms and rules for spending money. Once you see this working, you can expand it to the rest of your company!
Giving the power to make decisions to those members who are actually going to use and benefit from the expenses, can lead to better resource allocation, greater responsibility, and better results. You don’t need any special tools. Trust and responsibility are the main ingredients.
Managers will like that they can offload this task; after all, they are not experts on budgets. As long as there is planning and communication between the budget owners and your Finance team, this method can really improve the way your company invest its money!
Larisa Ramos has a Bachelor of Business Administration and Strategy from ITESM in Mexico, and is since 2014 part of the finance team of Mexican software company, and Nearsoft. She especially likes corporate and personal finance. If she is not working, you can probably find her learning German or walking her dog!
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This is an interesting story, but the way I read it they would still struggle with some of the budget problems. These teams have full autonomy, but only within a predefined budget limit. How does one know upfront what that limit should be? I see there is a budget for "unplanned", but it doesn't remove the "pre-allocate, re-allocate" exercises. There are many organizations out there with literally no cost budgets at all, just a strong cost-conscious culture and full transparency on all spending. See more on bbrt.org.
In early 2018 I took on a new challenge. After two years in the popular management world I decided to take a leap into academic life. I started a part-time PhD program in Business at the VU University Amsterdam. Since then I have researched how large organizations (with thousands of employees) can scale and organize without the need for middle management. It’s time to share what we’ve learned.