How You Can Make Strategy and Budget Work Together
Budget, Business Tips, Business Growth
In our recent article on budgeting, we (sarcastically) said that it’s everyone’s favorite time of year. Now, here’s another topic we often see an adverse reaction toward: strategic planning. In keeping with our tradition of breaking down topics that our clients and other like-minded business owners find daunting – we’re going to deconstruct the two, and show you the synergistic relationship between your company’s budget and its strategic plan.
Here might be a common scenario: Your CFO or controller starts a budgeting process. It usually starts with “what did we do last year?” At some point, you’ll ask, “where are we going?” You might hire a consultant to help you figure that out. The question that rarely comes up is how does this same-as-last-year budget get us there. Eventually, you’ll have a budget and strategic plan – and then it all goes into a binder and rarely gets revisited or referenced. However, as all business owners know, the path is never linear. What happens if your budget gets derailed? Maybe you’re hit with a surprise expense such as an increase in commodity prices, overhead costs, or even a lawsuit. As you scramble to keep your company’s finances on track, the strategic plan or long-term vision may get pushed aside. The problem is, you can’t succeed with a balanced budget alone; you need strategic planning in order to guide the budget.
So how do we save strategic planning from getting thrown overboard when businesses focus on staying financially afloat? The two should come together in a way that drives your business forward rather than merely keeping it above water. But first…
What’s the difference?
At their core, strategic plans are basic. We assess the market, identify the opportunity, build the go-to-market plan, and roadmap the big picture initiatives that make the vision a reality. They are cross-departmental and, most importantly, living documents. They may involve building a new capability, service, or function within the organization. A strategic plan may also leverage an existing competitive advantage or the building of a new one.
Those big picture initiatives are then broken down further to different departmental activities that might include improving existing processes, entering new markets, or implementing new technology. This becomes the basis for your budget. You have to then make choices of where to allocate those dollars (or get new capital).
Here’s a simple way to look at it:
- Each year you set out a budget to fund specific activities
- The activities are designed to meet certain objectives
- These objectives support the main vision of the business
For example, a company that sells organic skincare products may decide on a strategic initiative to branch out into organic makeup. When your budget for the year is approved, you would look at your strategic initiatives, outline all the activities or tasks it involves, and then build it into the budget. In this case, the strategic initiative is the creation of a new line of products. In order to support this initiative, the company may have to expand its facility, increase production, invest in product design and market research, and launch a new marketing campaign. This would all be considered as part of the day-to-day activities or tasks that support the strategic direction of the business, and they’re included in the budget.
A qualified professional can help you figure out your company’s strategic objectives and the activities that will help you get there. Together you’ll drill into the detail with your budget to make sure the financials support the strategic objectives.