Strategic business planning aligns strategic priorities with financial realities. The reverse is also true; the budget needs to be congruent with the strategic business plan. Budgets are required to play many roles. A budget quantifies long-range financial strategies. Strategic planning or budgeting, in financial terms, historically analyzes the organization’s activities and the outcomes of those activities reported in terms of income, cash flows, and financial status. Preparing a budget is valuable as it is often foundational for making managerial decisions and future planning. Budgeting also provides a benchmark to measure planned activities against actual activities.
The dollar and cents of the budget need to work for the company’s objectives. The seven key questions to ask when preparing a budget include:
1. Who’s using the budget?
2. Is it a useful tool to help managers accomplish the goals and objectives that have been established?
3. Is it tailored to the person making the decisions?
4. Is it reduced to a level that the decision-maker can comprehend?
5. Does it focus more on management by the numbers or,
6. Does it emphasize management processes?
7. What are the strategic relationships within the company to produce competitive advantage?
Answering these questions objectively will lead to decisions that will create a living budget to enhance organizational performance. The objective of an organization should not be to have actual outcomes equal budgeted outcomes; the objective should be to operate profitably, as expressed and measured by rate of return growth in profits, market share, levels of service, and other measures that reflect the purpose of the organization.