Most companies don't plan to stay the same or do the same thing forever. Even the smallest business has a vision for the future evolution of the company. Planning is the first step towards achieving growth for any organization, and budgeting is the ongoing process to manage this growth.
Planning and budgeting alignment ensures you have what you need to wisely allocate funds for growth.
Unfortunately, some companies lose sight of the connection between planning and budgeting. Companies often have budgets that conflict with their strategies, even though they recognize the connection between the two. It's a common mistake for a company’s budget to be at odds with its strategy. Aligning planning and budget is a crucial step to achieving your company's goals and objectives.
The relationship between strategic planning and budgeting
Your strategic plan is the vision for your company. It’s aspirational like a mission statement, but more pragmatic. Detailed financial plans set your organizational goals.
Your business budget should guide you in allocating resources to execute on that vision. The budgeting process ensures that you convert your company's raw materials — personnel, money, tools — into efficient business operations.
When you create a budget, avoid allocating funds for operations and smaller projects that don't feed into the larger plan.
At the same time, make sure your plan is realistic. Realistic goal setting helps you make smarter business choices and avoid budget overextension down the line. A plan that tries to do everything at once and falls short because ends up hurting your high level goals.
Aligning your budget with your corporate vision is easier said than done. Here are three keys to aligning your strategic planning and budgeting processes.
Create business budgets with strategic plans in mind
Most business plans span a longer period than 12 months. Most budgets look at a specific 12-month period, or annual budget. There are a few ways to reconcile these differing timelines, including rolling budgets (see below).
If your business maintains an annual budget, be sure to include long-term plans and goals into the budgeting process early. This is the best way to avoid allocating funds to short-term projects that don't advance your financial goals.
Build transparency into budgeting and planning processes
Most companies have separate teams that handle planning and budgeting processes. The team members that set the strategic plan are not always the same people that define the nitty gritty budget details.
It’s impossible for the finance team to support the larger business plan if they don’t know what it is. Executives must transparently to communicate high level goals to directors and managers. This allows them to allocate resources to strategic projects at the appropriate time and to make better business decisions.
Review, measure, and adjust budgets and plans
Organizations need to measure strategic progress against their defined goals. They also need to regularly ensure that their plans aren’t outpacing the actual budget.
A dip in sales, a hiccup with suppliers, a financial change for potential investors — any of these factors can throw a wrench into your plans.
You can ensure that your planning remains nimble by adopting a rolling budget. Rolling budgets help companies adjust quickly to meet new business demands while still sticking to a larger plan. Regularly reviewing budgets helps to quickly identify and address any changes from the original budget. This in turn allows the company to remain flexible and achieve its objectives.
Planning and budgeting are both important to the stability and growth of a company. A company must closely align and review these two processes to successfully maintain its growth and meets its goals.
Use Planning Maestro to align planning and budgeting
Centage's Planning Maestro planning and budgeting software helps you track your long-term goals while keeping the short-term budget in focus. It also gives transparency to teams across your organization, and lets you easily adjust rolling budgets.
Want to learn more about how our formula-free approach to FP&A software is helping businesses with planning & budget alignment? Book a demo to see it in action.