Newsflash: Integrating Strategy, Business Plans and Budgets

Once a corporate strategy has been developed and adopted, “alignment” to this strategy throughout the organisation is the name of the game. Individual businesses and profit & cost centres strategies should be aligned with the overall corporate strategy and in turn the financial incentives of employees should be aligned with the success of the strategy of the business unit they work for as well as the corporate strategy.

Best practice thereafter is to link a company’s strategy with day-to-day operations through an operational business plan, outlining how strategic objectives will be achieved, typically over a period of 3 to 5 years. A business plan will normally encompass a sales plan as well as the operational and capital expenditure plans required to achieve that sales plan. It will also contain medium-term financial projections in the form of profit and loss (P&L) account, balance sheet and cash flow forecast covering the same period. The assumptions behind the business plan should be clearly stated as these as the key drivers of the financial projections.

Whilst a business plan is a relatively high-level summary of how a company will move towards its strategic objectives over the medium-term and includes the financial quantification of this plan, an annual budget documents, in a much more detail, how the plan will be carried out over the next year, again with the associated financial projections. A budget will include, month-by month, a P&L account covering revenue and expenses, a balance sheet showing the evolution of assets and liabilities as well as a budgeted cash flow forecast. Again, the assumptions underpinning the budget should be an integral part of the budget document. Linking back to the business plan, in theory at least, the budget should be a more detailed version of the first year of the that plan.