All companies need business plans. They are not only for start-ups, but also for established companies. Business plans help you define your strategic goals that will enable you to meet or exceed your financial and non-financial business goals. However, a business plan is not a budget. It is an annual plan for how you will achieve your financial and business goals based on strategic information such as competitors, target customers, geographic expansion, etc. A budget is a management tool that breaks down in detail by month how you will achieve the plan. The budget is used to compare actual performance against budgeted performance so you can take immediate action when things go off track.

Annual plans are typically used by business managers and focus on specific goals that the business wants to achieve by the end of its fiscal year to move the business in the right direction for profit, growth, or both. These goals can range from hitting certain profit targets to improving productivity. It is up to senior management to decide what are the most important drivers of the company that will enable growth or profits.

Once the total objectives of the organization are established, each department must create its objectives that will help to achieve the general objectives of the company. Here’s an example:

• ABC Labs has set the following annual goals:
• Increase profits by 10% over last year
• Increase the market share of your test products by 5%
• Improve customer service ranking by 2

As a result of the company objectives, each department has created the following objectives:

• Sales Department – Increase sales by 20%
• Manufacturing Plan – Increase productivity by 15%
• Marketing department: Reallocate current marketing budget to focus more on testing products than other product lines
• Service Department: Hire 3 more Customer Service Representatives

As you can see, each department’s goal is aligned with the achievement of the company’s overall annual goals. Now that the objectives have been established, the next step is to create a set of pro forma financial statements by department that is reflected throughout the organization. The purpose of this is to break down the goals by month so that progress towards the goals can be tracked on a monthly basis and individual departments can be held accountable for meeting their annual goal.

The budget and the annual plan must be correlated with each other and both must be used as key management tools.