The NetSuite Accountant

What is a Long Range Plan, Budget and Forecast?

Paul Giese Jun 21, 2018 5:00:00 AM
Paul Giese

You might think that a long-range plan (LRP), budget, and forecast are interchangeable. The differences were hazy to me until I started working in a financial planning and analysis (FP&A) role. Below, I discuss how each of these tools ensures financial and strategic success.

An LRP is a strategic financial plan that is long-term in nature, generally covering the next three to five years. The LRP planning process ensures the financial direction of the organization matches the strategic goals. Predicting clinical and development costs five years in the future is challenging. Thus, an LRP uses high-level, standard cost assumptions based on historical data, experience, and objective sources. An LRP also maps critical inflection points and the associated hires, financings, and business development deals. The LRP can assess best-case, worst-case, and base-case scenarios and the associated financial impact.

A budget is a financial plan that covers the next twelve to eighteen months and is more detailed than an LRP. A budget often has detail by vendor, account, department, and project. Senior leadership should ensure that the business goals drive the budget. A budget is approved by the board of directors once a year, usually in December. Once approved, the organization uses the budget to hold people accountable for spending that did or did not occur throughout the year, often called a budget-to-actual analysis.

The business should drive the budget, not the budget driving the business.

As circumstances change, a budget can quickly go stale. The original budget is static. A forecast is the revised budget, based on the nature of change in circumstances. The type of change in circumstances will drive the level and scope of the forecast process. Again, this is another tool to hold people accountable for spending that did or did not occur. Some years a forecast may not be necessary. Other years, it might be required several times.

At intheBlk, our goal is to help early-stage biotech organizations run efficient and effective LRP cycles to help achieve their financial and strategic goals. We know that running this process in Excel is poses significant challenges to time-strapped accounting departments and biotech founders. To find out how our model can help your organization, please contact us below.

Are you a growing biotech organization looking to upgrade your accounting software? Check out our NetSuite Implementation Resource page for guides and help articles on starting the review for proposal (RFP) process.

Topics: Financial Reporting, Long Range Planning, Budgeting