Why it's important to do strategic planning before budgeting

This time of year, firms are either starting or finalizing their budgets for the next year.

Many small businesses go through this process so they can measure how effectively they are accomplishing their financial goals, but they should never tie their budgets into a strategic plan.

Budgeting by itself is not effective because it only reflects the company’s financials, and financials are only part of the overall picture. Whereas budgeting tends to be a once-a-year project, strategic planning looks at a longer period of time and considers the totality of the company and its future.

Though financials are important, budgeting should describe in financial terms the long-term objectives of the company. To accomplish this, make strategic planning the lynchpin of your budgeting process.

Imagine you were driving to Seattle without any concern for how you got there or when you got there. The only concern was making sure you did not go over your budget for gas.

Though you might get there, you probably would miss some beautiful attractions and great places to eat along the way. This is akin to trying to budget without a strategic plan. You don’t want to establish a budget without first having a strategic plan.

One of the biggest mistakes I see firms make while budgeting is assuming conditions will not change. Hardly anything stays the same, so failing to think through the ramifications and strategic issues associated with changing conditions could be a disaster.

A key focus of strategic planning is understanding the direction of future growth. It is critical to have a good handle on this, so I encourage every business – no matter their size – to complete a strategic plan every year before beginning the budgeting process.

I normally recommend hiring a facilitator to guide firms through the strategic-planning process. The facilitator will ensure you are considering critical issues such as where the company has been and where it wants to go, plus trends and competition.

Yes, strategic planning takes a lot of time and effort, but it is well worth it.

For all the reasons I have shared, every firm will benefit from adopting a regular strategic planning process. I have even seen this process reveal new, easy-to-navigate paths into markets where firms previously thought there was no way forward.

Now is the time to go out and make a commitment to making strategic planning an annual or biannual process.

Simply put, it is not good business to build your budget without doing your strategic planning first.

You can do this!

Dr. Osteryoung has directly has assisted over 3,000 firms. He is the Jim Moran Professor of Entrepreneurship (Emeritus) and Professor of Finance (Emeritus) at Florida State University. He was the founding Executive Director of The Jim Moran Institute and served in that position from 1995 through 2008. His newest book co-authored with Tim O'Brien, "If You Have Employees, You Really Need This Book," is a bestseller on Amazon.com. He can be reached by e-mail at jerry.osteryoung@gmail.com.

Tags: Florida Small Business