Prepare for the future
Many governmental units, both large and small, are facing financial challenges due to rising costs and little to no growth in revenues. Taking a short-term “fill-in-the-forms” approach to budgeting is not sufficient to build sustainable budgets. There is a greater urgency to extend planning horizons beyond one year and develop long-term cash flow projections to identify potential budget deficits and cash flow shortages before they occur.
Shortfalls of the annual budget process
The typical budget process involves planning for only one year. This approach ignores the trends or potential challenges that may arise in the future. Focusing on only the next year fails to illustrate the impact of permanent budgetary changes that can affect future budget years. Annual budgets are often reactive to the current situation and often do not meet prioritized initiatives.
A proactive approach
A comprehensive long-term financial plan provides a road map to help you accomplish priorities over the next several years. A financial planning strategy and plan typically includes 2 to 3 years of historical data to help identify trends and determine current financial position and 3 to 5 years of projections. Key elements of the plan may include maintaining or changing current services levels, identifying potential new revenue sources, effects of circuit breaker tax credits and potential cost savings. Capital project planning is often a component of a comprehensive plan to help prioritize investments. This helps to ensure key assets are repaired and replaced as necessary before an emergency occurs.
Some of the benefits of long-term financial and capital planning include:
- Produces a well-constructed financial model that may be modified as different needs arise and as priorities change
- Provides a guide to preserve current financial position to weather economic fluctuations or unexpected challenges
- Identifies potential funding gaps allowing for proactive planning to secure additional capital or explore investment opportunities
- Supports a plan to maintain appropriate levels of service that taxpayers expect
