The 5 Essentials for Aligning Your Budget With Your Business Strategy Setting goals without the means to achieve them puts your company on a path to fail.
By Andrew Cravenho Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
In order to enable your business to function smoothly and do better, it is not only important that your budget mirrors its strategic goals, but you also need to have specific guidelines with regard to the steps to achieving those goals.
In today's dog-eat-dog world, businesses need to be capable of managing their financial resources to be able to deal with unforeseen challenges.
A disconnect between the budget and business strategy can result in lackluster budgeting and poor strategy implementation, which could spell doom for a business.
It is only when the budget is brought in line with the business strategy that you know their impact on each other, and where to most effectively allocate spending and investments.
Here's how you can align the two properly.
1. Get as many insights as you can.
For an infallible company strategy, ensure that all your executives bring diverse insights to the table. They should be well aware of how strategy and financial forecasting are related to business policies and how their role in the company affects its success.
Many a time, the teams formulating the vision and the company strategies, and the ones creating the budget are separate. However, when it comes to achieving company's goals, both need to understand that working in tandem is crucial to the successful implementation of the strategy.
Budgeting should be treated as a mechanism to earmark resources that help achieve strategic results. Gone are the days when budgeting was regarded as just another mandatory activity of strategy-creation. Today, it is more of a tool that drives business success.
Related: Stuck at the Idea Phase? These 6 Collaboration Avenues Can Help.
2. Have a long-term vision.
Annual budgets are meant for a period of 12 months. However, several business initiatives take more time to break-even and start performing. In such cases, the annual plan could essentially prove to be ineffective.
In such a scenario, you would probably regret not having thought long-term, which would have prepared you for such a challenge.
Working out a place for the budget in the long-term plan, rather than just the annual plan, ensures that the budgetary aspects align with the organizational goals. It also gives the annual budget the much-needed impetus to be a significant part of the overall growth strategy.
3. Measure your performance indicators.
It makes sense to keep tabs on the financial health of your organization. There is a plethora of Web-based accounting software available that helps you do that. It not only helps you monitor your monies but also manage it, track transactions, send/receive invoices, thereby preventing accounting gaffes.
Aside from that, measuring the success or failure of the budget is important as it lets you know how effective/ineffective it has been. Identifying the key performance indicators (KPI) is essential to measure it.
What makes KPIs so great is that they include both, financial and non-financial parameters as sometimes, the latter provide early indications. In order to be credible, these parameters need to be well-defined, clearly measurable and frequently circulated to key stakeholders.
Communicating the metrics that define success to teams enables them to determine whether they are on track and empowers them to modify to their plans accordingly.
Related: What You Aren't Measuring Could be Killing Your Company
4. Set realistic goals.
One of the most important business decisions pertains to goal-setting. When doing so, make sure your goals are attainable. Make projections by taking into consideration the economic and competitive environment.
For a foolproof budget, factor in the positioning of your organization compared to your competitors in the market. Be specific as to how you plan to use company assets and allocate them in a way that ensures success.
One may argue that positioning the organization in a certain way falls under the purview of the marketing department. Through the organizational budget and strategy, however, you can get information related to competitive assessment trickled down to every level of the organization so that your employees are able to take informed decisions.
5. Tweak your strategy as, and when, required.
While we all understand the importance of setting realistic performance expectations, several companies still tend to get carried away and set targets and expectations without thinking about the volatile market conditions.
To deal with such situations, make it a point to review your plans every quarter and modify them as necessary. By doing so, you will be able to detect your mistakes and know where you're faltering before a small problem snowballs into a huge crisis.
Financial empowerment is the key to aligning the budget with the company strategy. The robust financial health of your organization can go a long way in contributing to the development of the company strategy and can become a major force in its implementation. The above pointers are fundamental to creating commercial value within the finance function.
Related: Start a Business on a Bare-Bones Budget With These 3 Lean Tips
