Finance leaders today must guide their organizations through a complex and uncertain economic environment. And their challenge is to strike a balance between short-term financial stability and long-term growth strategies.
Headcount is every company’s greatest asset, and its largest expense, making it crucial to manage it strategically in these times.
In this post, we’ll share some key insights provided by Dave Wieseneck (Demostrack's VP of Finance) during an interview with The Headcount People Podcast about navigating the headcount planning process during this business environment.
We'll cover:
- The Finance leader’s mindset amid bank collapses
- The importance of headcount planning in this context
- 5 key best practices to develop an effective headcount process
But before diving in, let's take a brief look at Dave's background.
About Dave Wieseneck
Dave Wieseneck is the VP of Finance at Demostack, a B2B company that sells demo replacement software to sales and marketing departments.
Dave has more than ten years of experience working at multiple startups such as Ollie Pets, Letgo, and OLX. He has vast experience collaborating with cross-functional teams on accounting, finance, legal, and people-related operations. Moreover, he excels in helping companies to scale by establishing departments like Finance, Legal, and Accounting from scratch. This includes implementing systems, assembling teams, building process and more.
In the next section, we'll discuss some highlights from Dave's interview. Dave’s answers have been slightly edited for clarity. Plus, we've added extra valuable information to complement his responses.
The SVB collapse: A shift in Finance leader’s mindset
Silicon Valley Bank (SVB), the 16th largest bank in the US, suffered an unforeseen failure in March of 2023 and changed the financial context for all companies, especially tech startups. This unstable economic situation from the SVB downturn resulted in:
- Higher interest rates
- An unprecedented low in VC capital deployed
As a result, Finance leaders are taking greater care to preserve and use capital effectively. A recent Gartner survey shows that 28% of CFOs planned on diversifying company deposits between financial institutions in light of bank risks and widespread insolvency.
Dave states that capital preservation becomes crucial in this scenario. And this involves being more cautious with banking and treasury operations, including:
- Having a keen eye on deposits
- Setting up additional bank accounts
- Incorporating extra security protocols
Additionally, it’s imperative to reduce costs that don’t have a clear ROI or a specific need behind them. What’s more, the cost itself shouldn’t be the only factor to consider.
For example, when it comes to software purchases, Finance leaders should count on the time, effort, and risks involved to implement it. And the same applies to headcount expenses.
Dave points out that there's no one-size-fits-all framework to evaluate specific investments' ROI. Instead, there are questions worth diving into, such as:
- Is this investment necessary?
- Will it have a significant ROI and a quick time to value?
- What is the total ownership cost?
- Can we deploy it quickly to all relevant stakeholders, or will it take a long time and only benefit a few?
- Will it increase revenue or decrease costs elsewhere?
Overall, according to Dave, to achieve sustainable growth it’s important to avoid investing too early, hoping to reach a certain point in the near future. Instead, Finance leaders should focus on addressing actual needs, and ensure that they’re well-positioned before investing.
“Avoid getting too far out of the front of your skis; wait until it's necessary before deciding to hire or invest further. It’s just about being smart about your growth, ensuring it's profitable and accretive, rather than expecting to grow into it once you make that investment.”
What makes comprehensive headcount planning important in this context?
At its core, headcount is a major expense for fast-growing organizations.
"Headcount and the associated costs make up 80% of our P&L. That's 80% of our operating costs. So when planning and making strategic decisions, it's usually a top priority."
However, before the economic downturn, anticipating headcount needs 12 months in advance and making sure there was a solid plan for meeting them was common. Now, the focus has shifted to shorter periods. For instance, Dave now focuses on three months in the future. In this economic scenario, long-term thinking isn't as prevalent as it used to be.
“We like to think about: Where are we going? What are our needs today? Do we have the right team members in the right places to execute our plan?”
Additionally, he claims that it's going to take some time for the market to rebound. At this point, planning is important to analyze and detect your spending and hiring needs more effectively.
However, it's crucial to plan for lower growth than what you expect. And only when you start seeing higher-than-expected growth, should you hire more people and increase your overall spending. This way, you’ll be able to plan for the downside case as well.
Now that you have a clear understanding of why headcount planning is so important and how to approach it, let's jump into some best practices.
5 headcount planning and forecasting best practices for Finance Leaders in 2023
During Dave’s interview, we asked him about the headcount planning process within his organization.
Strategic headcount planning involves:
- Identifying your current situation and your goals
- Learning about your teams and getting the full picture
- Tracking current and future headcount for operational accuracy
- Consolidating data in a single source of truth
- Using budget variance as a future indicator
Let’s take a closer look.
Identify your current situation and your goals
Effective headcount strategies start with careful planning. And to do this, you’ll need to identify your current needs, upcoming scenarios, and your short-term goals.
Dave suggests starting by asking yourself these questions:
- What are you trying to achieve and what is your capacity?
- Where will you be in three months?
- Can a tool improve the current team's capacity?
- Should you hire more people, bring in a different type of member, or introduce a new tool?
All of these questions will vary depending on the team at which you're looking. Additionally, senior leadership should analyze their current workforce's performance and needs. Dave recommends examining:
- Are they working on the right things at the moment?
- Should they be working on something slightly different?
- What is their throughput? Do they have the right team to execute?
All parties involved should work together to get these answers with the clarity they deserve.
Learn about your teams and connect the dots
When it comes to headcount planning, an effective org design plays a crucial role in ensuring that you have the right resources to achieve your desired outcomes. Creating an optimal org design implies considering both top-down and bottom-up priorities. Ultimately, by keeping a fluid conversation with team leaders and relevant stakeholders, you’ll know what levers you need to pull.
“Have a conversation with your different team members and go deep on each department [...] At the end of the day, you have to trust your other leaders in the organization. They know their teams better than you do in Finance.”
However, it’s up to Finance to consolidate all the data and guide the business on the right decisions.
“In Finance, we can ask the right questions, we can give perspective across teams because [for instance] the sales team might not know exactly what the CSM team is doing. [...] Everybody's very focused on building their teams and delivering on their objectives.
In Finance, you see all the cards, you’ll see all of the spreadsheets. So, I think a big part of it is having those conversations, connecting all of those dots, and making sure that the organization is growing in different parts at the right times.”
Overall, the emphasis should be on understanding team members' roles, their impact on the company, and asking pertinent questions to leaders and stakeholders for valuable insights, and then acting on them.
Track current and future headcount for operational accuracy
To develop an effective headcount process, it is essential to understand how headcount impacts your costs. You should evaluate:
- Your current situation: Who have you added to the team? Who is active? Who is part-time? Who has been terminated? What’s the attrition rate? What departments are affected?
- The near future: Who have you made offers to? Who is pending to start? Who are you looking to hire? What stage are they in?
- Distant future: When is a good time to introduce a new role? What's the most suitable cadence for bringing it in – six months or twelve months from now?
According to Dave, hires beyond 12 months require a higher level of planning since they are more aspirational in nature. And to do it, you should take into account:
- Finance benchmarks
- Financial ratios
Moreover, you shouldn’t only consider new hires or terminations but also changes within your workforce, such as:
- Level changes
- Salary changes
- Employment changes
Ultimately accuracy in your budget and forecast is all about tracking these incremental changes, regardless of whether your headcount growth is substantial or not.
Consolidate data in a single source of truth
Currently, all relevant headcount information is manually managed in spreadsheets. Oftentimes, stakeholders have different versions of the same document resulting in data silos. This could lead to:
- Unapproved headcount
- Losing track of roles
- Failure to keep track of relevant data
- Stakeholders wasting valuable time, waiting for someone else to update spreadsheets
- Hiring slowdowns
- Missed business goals
Additionally, these spreadsheets mostly focus on the nearest months ahead and, according to Dave, those forecasts are quite reliable. However, this method makes achieving long-term planning with high fidelity difficult.
Ideally, this process should be automated using a real-time solution that consolidates all headcount data in a single source of truth, reflecting budget changes in real-time.
In Dave’s words: “You have issues where one person updated the spreadsheet but the other person didn't see those updates. And you start to say: we need one source of truth for this. [...] Updates consume too much of your time, preventing you from thinking strategically and focusing solely on the updates.”
This is when choosing a headcount planning tool becomes highly beneficial. It can streamline collaboration between stakeholders and provide a single source of truth for their decision-making.
An effective headcount planning tool will:
- Provide up-to-date relevant data in one place.
- Automatically alert stakeholders when strategic changes occur.
- Ensure stakeholders have access to necessary information without exposure to irrelevant data.
All in all, it automates the process and keeps all stakeholders aligned.
Using budget variance as a future indicator
While Dave says that variance isn't the most important aspect to measure the health of the business, tracking variance in headcount planning can help you confirm whether your projection model is accurate or not.
“If we're off by more than 5%, we know there's something that we're not taking into account, which affects our future outlook. It's not about keeping a scorecard on ourselves; it's about ensuring our forecast reflects reality, as our burn rate is crucial.”
Dave explains that variance tracking is key to answering:
- How much cash should you have today?
- How long is it going to last?
- When do you need to raise capital again?
In Dave’s words: “The variance analysis helps us to inform our model to make it better and more accurate for the future.”
If you want to dive deeper into Dave’s insights you can listen to the full interview on The Headcount People’s podcast.
The ultimate platform for accurate headcount planning
In this post, we covered key headcount management best practices provided by Dave Wieseneck. Headcount planning involves collaboration, control, and predictability, especially during economic uncertainty. However, a good headcount planning solution can provide the single source of truth that brings efficiency and accuracy to the entire process.
With TeamOhana, Finance leaders can plan headcount with:
- Collaborative work and full visibility - Effortlessly collaborate with HR, Talent, and Hiring Manager teams on a single platform.
- Forecasts - Integrate your ATS, HRIS, and hiring plan so you can have a single source of truth for current and future headcount spending
- Analytics - Enhance decision-making by monitoring relevant KPIs.
- Case scenarios - Utilize real-time headcount insights, predictive analytics, and past strategies to prepare for future scenarios and adjust budgets accordingly.
- and more.
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