Creating a Strategic Budget

Strategic budgeting is a critical tool for effective planning, growing sustainably, and your organization’s long term financial health. A well-crafted budget allows leaders to be comfortable with various possible scenarios, identify priorities and align resources to meet organizational goals. This article is the first of a series on budgeting. In this article, we discuss creating a strategic budget. In the forthcoming articles, we’ll discuss monitoring and adjusting the budget and overcoming common budget challenges.

At its most basic, strategic budgeting involves projecting future revenues and expenses while considering your organization’s strategic goals. A solid budget allows you to make informed decisions expansion plans, other investments, and cost cutting.

Start with these general steps to create your strategic budget:

Analyze Historical Data
Understanding your organization’s historical income, expense, and cash flow trends is critical to making realistic projections.

Project Revenues and Expenses
Use your sales forecast and your observations of your marketplace and industry trends to estimate future revenues. Your sales forecast will also help you project your variable expenses (such as materials and utilities). Don’t forget about your fixed costs also (such as salaries and rent).

Set Goals and Priorities
In this step, you need to think critically to align your budget with your organization’s strategic goals. Will you expand into new products, new services, new geographic areas? Will you scale down a legacy business unit that no longer fits with your overall strategy?

Allocate Resources
Now that you have a budget that aligns with your strategic goals, it’s time to put your plan into action. Distribute your financial and other resources in a way to support your strategic goals in line with your budget.

Prepare for Contingencies
It’s best practice to set aside a limited amount of funds as a cushion so that your organization can deal with unexpected expenses or market challenges. Organizations that have an appropriately sized contingency fund will have the stability to ride out difficult or uncertain times much better than their counterparts without such reserves.

Schreiber Accounting and Advisory has significant experience helping businesses and nonprofit organizations with their budgeting and other accounting, tax, and consulting needs. If your organization needs the assistance of a qualified CPA firm, contact the firm for more information.

Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.