Strategic planning is one of the central tools for the growth of organizations. This process includes analyzing the external and internal environment, identifying issues for improvement, and setting goals that cover these issues. Financial planning is central to setting these goals since most changes require a cash investment.
As noted by Ross et al., most corporations pursue growth and use its rate as a key component of long-term financial planning. At the same time, corporations need to appropriately allocate funds to invest in their own development or acquire assets, pay dividends, create emergency funds, and take new initiatives. Consequently, in fact, strategic and financial planning are inseparable since any goals require the determination of means for their implementation.
This aspect also applies to budget planning because the appropriate allocation of funds helps avoid cost overruns or failures due to lack of funding. For example, if the primary goal of the company is to develop a new marketing company to increase sales, a significant part of the budget will go to the research and marketing department.
The goal of product diversification means that the budget will be directed to most departments at almost an equal level since new product launches require market research, product design, production, and promotion. In addition, the company usually has obligations to pay creditors or investors and maintain decent working conditions for employees in all departments, which should also be budgeted. Thus, the financial plan and budget are central components for the development of the company’s strategic plan as it depends on them to achieve the goals.