In the words of Frank Sinatra “Love and marriage, love and marriage, go together like and a horse and carriage, this I tell you brother, you can’t have one without the other”. The same holds true when it comes to strategic and financial planning. Too often business have very detailed strategic plans (often too much detail) and no financial plan. Others have a financial plan or budget, with no strategic plan guiding it. In rare cases businesses may have both, however many times they are not in alignment.
Most companies often have strategic plans and no financial plans. In these situations, we usually see several issues. First the strategic plans are too detailed. Pages and pages of initiatives, opportunities, and other unnecessary details. In this situation, the plans are too daunting, causing anxiety and put in the drawer until next year. In other cases, the plans call for aggressive investment. With no clear financial plan, business again put then in the drawer because they do not know if they are financially viable or have clue on what it will mean to the business long term.
On the other side of the coin some businesses have budgets and confuse these with strategic plans. These businesses may hit their net income number, however often struggle to grow the top line. They are constantly cutting expenses to hit the income or cash target and not investing in the future. Shrinking your way to greatness may work in the short term but with no future vision the business may not have a future.
Finally, some businesses may have both, however many times the strategic plan was not used to create the budget. This will create a tug of war between budget and the strategy. That forces to business to choose the between the two creating confusion, missed opportunities, and ultimately a non-cohesive leadership team damaging the health of the business.
In a proper planning process the strategic plans drive the budgeting process. Strategic initiatives and other investments are included in the budget. This will provide three benefits; First, when the budget is complete, if the overall sales and income do not meet expectations, it allows the leadership team to take a hard look at legacy spending and make reductions in areas that are not driving growth and keep their strategic initiatives. Second, it will provide an accountability tool. With ongoing monitoring of your variances to budget the team will know when initiatives are not being completed. Finally, it will allow the plans to work together focusing the energy of the leadership team creating a healthy and growing business.
When it comes to strategic and financial planning just like the song say, “this I tell you brother, you can’t have one with other”.