STRATEGIC PLANS, business plans, financing plans, forecasts, and budgets all purport to do the same thing: assist you in planning and controlling your business. It’s enough to make a person’s head spin. Why so many terms for essentially the same thing?
Well, to begin with, the business community, the financial community, the academic community, and the U.S. government all tend to misuse these planning terms. More often than not, people choose a term they are familiar with and then apply it indiscriminately to all plans. Unfortunately, this doesn’t help the non-financial manager who is trying to make sense out of an apparent hodgepodge of financial terminology. Let me try to put this whole planning mess into perspective with some basic definitions that I use in this book (and, I might add, that are used by knowledgeable business planners and analysts), beginning with long-term plans and working down to short-term plans.
A strategic plan is a long-term plan. Typically, it looks five years into the future—at times even longer, depending on a company’s business cycle. If the cycle is seven or ten years, then the strategic plan should be seven or ten years. Strategic plans lay out a company’s long-term objectives in narrative fashion, covering all major activities—markets, products, finances, human resources, and R&D. This narrative is supported by detailed financial forecasts of balance sheets, income statements, and cash flow schedules for each year of the plan. A strategic plan is primarily a working tool for top management and the board of