Get Ahead of the Curve: Build a Strategic Budget That Drives Real Results

Budgeting is a component that all organizations cannot afford to avoid or ignore. Information collected to develop a reliable budget comes from various parts of an organization. Information from the human resources, operations, marketing, research and development (R&D), finance, and accounting management functions all play a part in the creation of a good, reliable budget.

At any rate, it is used as a tool to help in personal and business finance. Without this tool, unfounded estimations can be made. Establishing goals that are specific, measurable, assignable, realistic, and time-related (or SMART) to a cash budget can be performed which will allow decision makers to make better short-term and long-term financial and strategic decisions.

By generating more cash flow than it needs to pay bills and invest in new current and fixed assets, a firm creates value for shareholders or owner’s (Zutter, 2019, p. 156). So, if an organization can identify and invest in an optimal, sustainable amount in marketable securities that are equivalent to their fixed assets that are contribute to their core competencies they can potentially see benefits. Particular attention to planning for cash deficits and surpluses is given by financial managers and other decision makers. Which places a spotlight on the opportunity to also plan the budget to include a way to address fixed expenses. In fact, some may argue this is the better of the two between regarding the marketable securities approach. Either way, the fixed assets or fixed expenses concept, has the potential to improve working capital among other things. And the marketable securities concept can be applied in both personal and business finance.

The cash budget, or operating budget, is generally one year or less. Estimating total income and expenses for a full 12-month period may seem like a daunting task but favor leans to eliminating if not reducing waste. And waste includes time, not just money. Good financial decision-making warrants exploration of the12-month budget forecast approach for any organization or individual. Taking it further, preparation of 3-year cash budget plans is something to be achieved! In most organizations, it is required at the C-suite level. While it is not unheard of, it is an effective financial strategy that some organizations seek beyond the ‘six-months of emergency funds’ concept. Which may provide an individual or organization the financial stability and flexibility to make better decisions regarding the quality of their life or organization.

In summary, cash budgeting helps decision makers better manage their ability to satisfy their financial and strategic obligations. Some have heard six months of emergency is sufficient. But, as we know, times have changed. It may now be reasonable to begin retaining enough money to pay all expenses for one full year. Wise managers can agree budgeting can be challenging and even frustrating but having an effective solution that best fits the organization’s needs is tantamount! Create and execute a budgeting plan with SMART objectives that are aligned with the organization’s short- and long-term goals. This will bring benefit in the form of value or profit…or both!

References

Zutter, S. B. (2019). Principles of Managerial Finance, 15th edition. New York, NY: Pearson.

---

Meet Nikia Smith, the Project Management Consultant driving success at Business and Wealth Generations. With over a decade of advisory expertise, Nikia orchestrates strategy and operations, spearheading growth and innovation. Beyond his professional endeavors, Nikia actively participates in his community, having served on the Board of Directors at the Project Management Institute Florida Suncoast Chapter in different roles for several years. Recognized for his contributions, he received the PMI Florida Suncoast Chapter Award in 2018 for significantly boosting membership and retention and was also selected to attend the 2019 PMI North America Leadership Institute Meeting in Philadelphia. Nikia holds a bachelor’s degree in management and organizational leadership with a focus on Project Management, alongside several business certificates from St. Petersburg College. He is also certified in CAPM and PMP by the prestigious Project Management Institute. For collaboration opportunities, reach out to Nikia at info@thebusinesswg.com.