Few companies open their doors with the intent of staying the same size, or doing the same thing, for the life of the organization. Even a small business has a vision for the future of the company.
Companies also have a finite number of resources they can apply to running and growing the organization. Budgeting is a critical part of making sure you have what you need to operate and that you intelligently allocate funds for growth.
Unfortunately, some companies lose the connection between planning and budgeting along the way. While they understand that the two are intertwined, it isn’t uncommon for a company’s budget to be set up at odds with its strategy. Aligning planning and budget are crucial to achieving your company’s goals.
Why Planning and Budget Should be Aligned
Strategic planning is the vision of where you want your company to go. It’s aspirational, but not unrealistic. A well thought out plan will tell you where you’re going and lay the groundwork for how you’ll get there.
Your business budget should guide you in setting up your resources to execute on that vision. It’s financial planning that ensures the things you need – headcount, capital investments, equipment, and so forth – are available to get you to wherever you plan on going.
It’s easy to get caught up during the budgeting process in ensuring that money is allocated for operations and smaller projects that don’t feed into the larger plan. It’s also easy to set a plan in place that tries to do everything during a single fiscal year and falls short due to a lack of resources. Ensuring these two are aligned across the planning process is how an organization achieves its vision.
Setting Your Budget to Support Your Corporate Strategy
Getting your budget to support your corporate vision can be easier said than done. There are three keys to getting both of these important business functions moving together in the same direction.
Keep Your Eye on the Ball
Many business plans span over much more than 12 months. And many budgets look at a 12-month period. While there are several ways to adjust this (including rolling forecasts, discussed below), those organizations that keep to an annual budget need to include these long-term plans into the budgeting process early before all funds are allocated to operational endeavors and short-term projects that don’t move the company toward its end goal.
Throughout the budgeting process, there should be involvement from leaders who understand the aspirational vision of the company and can guide directors and managers to include those projects that deserve consideration alongside the projects and expenditures that keep the lights on.
This kind of collaboration can be difficult in a product like Excel, where a busy executive can slow down the planning process. To ensure better alignment, companies should consider a budgeting and planning tool that encourages multiple participants and inputs throughout the process.
For some organizations, the team that does strategic planning is not the same group that defines the nitty gritty details of the operating budget. It’s impossible for the finance team to support the larger business plan if they don’t know what it is. Executives need to communicate the business’s long-range financial goals to the directors and managers creating the budgets so that resources are appropriately applied to the right strategic projects at the right time.
Sharing the company’s vision does more than simply get the budget and strategic goals in line. When the organization understands the overall company direction, it creates a sense of purpose for those working on the front lines. Attaching purpose to day-to-day tasks motivates employees, and aligning vision and budget keeps the company on the right track.
Review, Measure, and Adjust
Today’s business world changes, rapidly. Not only do organizations need to measure their strategic progress against their defined goals, but they need to ensure that those same plans aren’t outpacing the budget or actual performance. A dip in sales, an issue with suppliers, any number of problems can throw a wrench into the most well-laid plans. Historical data will get you a baseline to start from, but not every year, or even every month, looks just like the last.
A rolling budget, also known as a rolling forecast, can help organizations adjust quickly to meet new business demands while still staying on the planned path. By looking at budgets monthly or quarterly instead of annually, balance sheets and budget can be regularly aligned and deviations from the original budget can be made quickly, keeping the organization agile while still reaching its goals.
With regular reviews of financial targets, budgets, and strategic goals, leadership can make data-driven decisions on the value of projects as they apply to the overall vision. Rolling budgets encourage frequent interaction with the company’s goals and financial situation and leads to better, overall decision-making.
Planning and budgeting are both important to the stability and growth of a company. But they don’t exist in a vacuum. Strategic and operational plans must be in lock-step to move the company in the right direction. These two pieces must be closely aligned and reviewed both separately and together for a company to successfully reach the next level in its growth.
Centage Corporation’s Planning Maestro is a cloud-native planning & analytics platform that delivers year-round financial intelligence. With Planning Maestro, Centage offers the sophisticated features needed by small and mid-market organizations to integrate budgeting, forecasting, and deep data analysis within one easy-to-use, scalable SaaS solution. For more information on how to modernize your office of finance with intelligent planning, view our product demonstration video, or call 800-366-5111.