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Are You Budgeting for the Right Things?

Make Sure Your Strategic Planning and Budget are Aligned

Every business needs a budget, right? But how do you know if your budget is right for your business?

For most organizations, it is not enough to simply track all of its expenses and revenue. For your business budget (and your business) to truly be successful, you need to tie it to your strategic planning.

Creating a strong strategic plan can help give your business budget direction. Let’s look at two examples to put this into practice:

Example #1: Company A is budgeting without a strategic plan.

Company A has built their business budget planning the traditional way. They sat down at the beginning of the fiscal year and estimated expenses based on the previous year’s budget. They projected incoming revenue based on historic data as well. They assigned departmental budgets based on how much it has traditionally cost to keep that department running, trimmed expense categories where they could find savings, and made sure that at the end of the budget their expense vs. revenue figures evened out.

Company A reviewed their budget throughout the year, stayed on track with their projections, and ended up with a balanced budget. At the start of the next fiscal year, they repeat the process.

Example #2: Company B creates their business budget in tandem with their strategic plan.

Company B sets out to build a five-year strategic plan for the business. The goal in year one is to decrease operating expenses by 5% across the board. In year two, they aim to increase sales by 15%. In year three, they want to invest in a piece of business intelligence software that automates their budgeting process. In year four, they want to reassign administrative resources to begin focusing more on data analysis and decrease administrative expenses as a percentage of revenue by three points. By year five, they want their software investment to have made back its initial cost and they want their profit margin to have increased by 20% since year one.

With these goals in mind, each year’s budget might look different. While past figures are still important, they are also being more strategic about how they allocate their funds. A budget focused on decreasing operating costs might not have the same priorities as a budget focused on increasing sales revenue. Company B recognizes this and adjusts accordingly.

Company B also does a rolling forecast and checks in on their budgeting and forecasting on a monthly basis to make sure they are on track to their overall goals.

The example of Company A isn’t necessarily wrong. Everything they are doing is a sound financial practice and their business is still continuing to turn a profit. However, they are stagnant. They are not actively moving towards growth, and that could be a problem.

Budgeting for the right things does not necessarily mean only making sure there is enough money in the budget to cover all of your expense items — it can also mean justifying each line and prioritizing different line items at different times.

If your budget is not actively moving your organization towards growth and innovation, there’s likely more that it can do.

True Sky’s corporate performance management software can help you connect your business budget planning and strategic planning, all in one tool. You can track key performance indicators, forecast for the future, and create workflows, all from one tool.

Contact us today to learn more about how we make your business budgeting better. Visit www.truesky.com or call 1 855 878 3759.

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