Should you have 2 budgets or 1?

“Why on earth have you reduced our revenues by what appears to be 15% and our results by 25%?” You look at your CFO in disbelief. He meets my gaze steadily. "In the bank meeting on Friday, it's crucial to be cautious," he explains. "We will overperform by scaling back revenue projections and incorporating multiple cost buffers. Banks hate unpredictability, and with this budget, we will secure the credit line and avoid surprises."

 “So you´re saying we should have 2 budgets next year?” You say, shaking your head. “No, not 2, I´m planning to make 3. One for the bank, the most conservative one, one for the management team that is the most aggressive, and finally one for the board that is right in the middle.”

You hired a CFO to take it to the next level, but this seems too excessive. “This makes no sense to me. Everyone knows that whatever happens, you never hit the budget 100%. You either go over or under. That is just business. I believe we should have one budget and hold everyone accountable to it.” "This is very naïve,” ehm, your CFO clears his throat when you raise your eyebrows, “or unusual, compared to what I´m used to, but it´s your call.”

You are the CEO – what would you do? 

Expert 1: Go for 1 budget

It would be wise to go with a single budget since having one budget aligns the entire organization toward a single set of goals. Multiple budgets can become confusing for teams, and conflicting priorities may emerge. Everyone should be working toward the same financial target, enhancing accountability and coordination across departments. A single budget ensures that the team is held accountable to one clear plan. When you have multiple budgets—one for the bank, one for management, and one for the board—it creates an opportunity to shift blame or adjust expectations. A single budget creates discipline and commitment to meet specific goals. Managing multiple budgets is not only administratively burdensome, but it also drains time and resources. Instead of focusing on execution and results, the management team will end up juggling different financial plans, leading to inefficiencies and potential misalignment of priorities. Investors, banks, and other stakeholders appreciate transparency. A single budget reduces complexity and allows for clear communication of financial objectives and performance. Ultimately, one budget fosters a unified direction, builds accountability, and simplifies financial management, making it the optimal approach.

Expert 2: Go for 2 budgets

budgets are the best solution since different stakeholders have different priorities. The bank, for instance, is primarily concerned with minimizing risk and ensuring financial stability. A conservative budget that accounts for contingencies reassures the bank and secures favorable credit terms. Meanwhile, the management team, driven by performance and growth targets, can benefit from a more aggressive budget to push the company toward ambitious goals. By adopting a conservative budget for the bank, you build in buffers for unexpected fluctuations in revenue or costs. This approach minimizes the risk of missing crucial financial commitments, particularly during times of economic uncertainty. A more aggressive internal budget can drive innovation and growth without compromising the conservative outlook required by external stakeholders. Having two budgets allows the company to be more agile. The conservative budget offers a safety net for external reporting, while the aggressive one pushes the internal team to perform better. This ensures that while the company is being cautious externally, it continues to stretch for growth internally. Presenting different budgets for different purposes can improve credibility with stakeholders, allowing you to communicate the company's intentions and risks transparently. Ultimately, two budgets let you balance ambition with risk, satisfying both internal and external needs.

My opinion:

I have been in this situation. I first had one super ambitious budget, and this caused some issues with the bank when we only grew 84% compared to 120%. I then went with 2 budgets, and that made our job much more manageable. The bank was more pleased with things going to plan than the absolute numbers being better.