Ultimate Guide to Annual Business Planning


Changes in the business climate challenge companies to find more effective business practices. However, common budgeting limitations are preventing companies from moving forward.

Many finance professionals want to grasp the big picture of the company’s position by having the flexibility to evaluate and understand the effect of various factors. They want the ability to review previous years’ budgets, add or remove accounts or change budgeting assumptions with ease.

Data integrity and control issues are also very common challenges that companies report during business planning. The budgeting process can become very difficult to manage and various stakeholders begin to leach data ownership and confidence.

Business planning is a necessary evil, that if done improperly, can bring distress and anguish throughout the company. However, by resolving these issues, companies truly can gain a tangible competitive advantage by effectively budgeting and optimizing the use of their resources.

With a comprehensive view of financial and non-financial data, you are able to make better, more informed decisions. You can also accurately understand the true cost of your products and services and the budgeting process becomes much more efficient ultimately leading to more time for advanced analysis, improved teamwork and data ownership.

1. Identify the infrastructure supporting the budgeting process.

Understanding the components that support your budget plan is crucial for effective budgeting. From employee and knowledge to processes and technology, know how these components affect the business.

Begin by correctly assessing employees’ skill levels and assign tasks and responsibilities accordingly. Once individuals have been assigned tasks and responsibilities, the next crucial step is providing the correct tools and processes for them to complete these successfully.

Employees trained and cross-trained in the appropriate tasks will offer greater stability to the company and to items in the budget plan. With the right resource allocation, knowledge transfer increases and dependability on key personnel decreases. Companies following this practice are given more time to focus on the analysis of pertinent information rather than managing the process.

2. Define your business planning process.

Budgeting processes are used to help ensure the flow between planning phases and identifying the most efficient procedures. A well thought out budgeting process is essential for laying the groundwork for a successful and efficient budget cycle.

With a comprehensive understanding of the budget, companies are able to make better, more informed decisions and can accurately recognize the true cost of products and services. An efficient budgeting process provides more time for analysis and improves the ability to react quickly to change.

3. Choose a dedicated planning and budget software system.

Companies often seek software applications to increase the efficient, accuracy, and consistency of the planning, budgeting, and reporting process. Software will help automate the process and will add a business intelligence component to the company. The key is to have a technology that works for the company and supports your current and future requirements.

4. Establish and define the correct budget level.

The key is not to put in too much detail but also not too little. The time spent on focusing on details that do not influence business planning can be better spent elsewhere since it will bring no value. The detail in the budget should be significant.

One important thing to remember is that a budget does not need to reflect the actual expenses as stated in the general ledger. Budgets are meant to draw attention to significant variances so they can be investigated through actual data and by other means.

With the correct level of detail in the budget, all accessible data is relevant. This decreases the time required for budgeting and reviewing. Ultimately, a successful budget plan provides enough detail for budgeting assumptions and decisions and still offers the flexibility to adjust business finances as needed.

5. Define the Key Performance Indicators (KPIs).

KPIs are financial and non-financial metrics used to quantify objectives to reflect the strategic performance of an organization. KPIs give a greater understanding of key business drivers, which ultimately allows for effective time and monetary investments. They gauge and help control the present state of the business.

Depending on the industry of your organization, industry-specific KPIs could be researched through industry trend reports or annual reports of peer companies. Every industry will have unique measurements for determining the financial health of their organization.

As a best practice, limit the KPIs to only those factors that are crucial to the organization reaching its goals. They should reflect the organization’s goals and must be important to its success.

Once KPIs have been defined, they should be clearly communicated across the organization. When all departments are relying on the same information, the company clearly defines their goals and streamlines its processes while improving internal inefficiencies.

6. Make sure the budgeting and planning process is a collaborative effort.

Resources from all levels of the organization should be included when necessary. There should be a budget approval process so reviewers, managers and executives can decide on business strategy and management will ultimately implement the plan.

This gives you a great head start on preparing your next budgeting planning meetings.

7. Align all operating tasks with strategic planning of the company.

Day to day activities or operations should support the high level corporate plan to ensure that all planning efforts are cohesive throughout the entire organization at all departmental levels. This can be achieved by setting goals in specific areas and sometimes linked to incentives.

Employee incentives can lead to greater motivation which can produce a higher employee output. Departments should document and track the goals to make sure they are achieved.

8. Ensure there are proper resources available for attaining and achieving goals.

It is important to identify and prioritize projects that are in line with the corporate strategy to avoid wasted resources and misinformed decisions. Before deciding how to allocate resources, companies should also define their strategies, risks, and opportunities to help make better informed decisions.

Identifying key performance indicators are significant to the company’s success. Results can be monitored by using dashboards, scorecards, etc. This focuses on corrective actions and investigation that allow companies to refine and improve processes.

With a close alignment of resource allocation, productivity and accuracy increase, which help the overall health of the organization.

9. Create a timeline.

Many companies struggle with time-consuming planning processes. A good idea is to create a timeline that lists all the goals and timeframe of due dates. Some cycles that take a long time can result in irrelevant data by the time the plan is in operation. With a shorter planning cycle, data is kept up to date and relevant.

The planning process should entail the following actions:

  • 1) Define the company’s goals, key performance indicators and possible link these to incentives for employees.
  • 2) Constant communication during the planning process and obtain feedback from all departments.
  • 3) Complete the first draft of the budget and review.
  • 4) Complete the second draft of the budget and review.
  • 5) Complete additional drafts as needed and review.
  • 6) Finalize the budget, obtain the proper approvals, and communicate to all departments.

10. Manage the market conditions that are always changing.

Businesses can perform more efficiently with the ability to respond to the business climate, consolidate plan data, and analyze information in a timely manner.

Some key practices to develop are monthly and roll forward forecasts. Monthly forecasting gives the company flexibility to re-forecast and revise processes.

Frequent re-forecasting continually allows the companies to gauge their overall performance. Roll forward forecasts allow companies to have a plan that allows them to look ahead and management can use these forecasts to change processes.

11. Support and maintain the budget.

Providing a supportive and open environment reduces the chance of failure. Feedback, recovery time, implement a testing phase, and solve problem will aid in supporting the project.

12. Implement employee incentives.

Many companies use incentives to encourage productivity and support. Incentives are often tied to targets rather than objectives. Managers can produce their own goals and then obtain incentives as a reward.

Incentives offer encouragement and reinforcement for good results. When this all becomes part of the company’s culture, the business will function better and become successful by obtaining their goals.

The planning and budgeting process is aimed to help companies develop timely budgets and assist them in company cohesion and success. Many people look at the planning and budgeting process as a painful and time-consuming process but when communication is open and feedback is widely and openly accepted, it makes for a better work environment.

Many companies don’t use budgeting software programs because some are expensive and may not fit the organization or company’s needs.

Most companies use Microsoft Excel to create and maintain their budgets. Forecasts like cash flow forecasts are kept in excel format as well.

The user-friendly Excel can assist with calculating complex formulas, calculate what-if formulas, set conditional formatting to point out key areas, etc. Excel is handy because their files can be linked to other spreadsheets and can limit the amount of duplication and re-entry of information.

Some companies do annual business planning to document goals and timelines of when these goals are intended to be achieved. Budgets assign dollar figures to the business plan. These both go hand in hand to assist an organization’s planning process.


One Response to Ultimate Guide to Annual Business Planning