It’s the time of the year for strategic planning and budgeting

Frank Wojtowicz

As the end of the fiscal year comes into focus, it’s time to put together plans for the upcoming year.  If you’ve put together annual strategic, operational, and financial plans previously, terrific.  If not, there’s no time like the present to do this for the first time.

Most successful companies have an annual planning process to put together specific plans and goals for the upcoming year.  The results of this planning process can range from a simple income statement budget to an integrated plan that includes strategy, operations, and finances that includes new product introduction goals, customer-by-customer sales targets, operational objectives complete with action items and timetables, Key Performance Indicator goals, and integrated three-statement financial models (income statement, balance sheet, and cash flow statement.

If you’ve never done this type of thing before, it may be best to start with an income statement budget that specifies month-by-month expectations for revenues, line-item expenses, net income, and EBITDA.  Once the financial budget is developed, every month you will want to measure the actual results versus the budget, look for any unexpected results, any unexpected financial metrics results, and any trends, good or bad.  Then the appropriate managers and employees should investigate the details of any unanticipated results and determine the cause(s) of those results and put specific time-phased action plans into place to take corrective action.

If your company already has an annual income statement budgeting and monthly review process in place, you may want to expand the planning process further to identify, specify and plan for strategic and operational objectives and action plans.  And you may also want to expand the income statement budget into a balance sheet budget and a cash flow budget to determine what (if any) additional borrowings or equity infusions may be needed to achieve the overall plan.  Capital-intensive matters such as investments in new product introductions, factory expansion, and cost-reduction (or improved efficiency) fixed assets need to be planned for, as they may have a significant impact on a company’s cash flow and funding needs.

If you are not familiar with how to develop, implement, and follow up on these annual planning processes, there are professional services firms that can assist you.  To paraphrase the conversation between Alice and the Cheshire Cat in Alice in Wonderland, “If you don’t know where you’re going, any road will get you there.”