Chart your financial path for the future

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 roadmap to help you accomplish priorities over the next several years. A long-term 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
• Helps to prioritize projects and develop a plan to finance those projects
• Promotes efficient use and management of resources spreading the costs of capital improvements over time
• Demonstrates strong management which is particularly important to bond rating agencies

It is important to prepare or revise your financial plan early in the year. By the end of the first quarter, you should have a clear and complete plan. The plan will provide the information needed for a seamless budget process, allowing decision makers to understand the resources available for the upcoming budget year. In addition, the planning model may be used to project the impact of various budgetary changes, like salary increases, in future years.

To avoid potential financial challenges, it’s important to plan ahead. Having a comprehensive financial plan in place will allow you to take a proactive approach to financial management and keep you on course to meeting priorities in the long-term.

If you have any questions about developing a comprehensive long-term financial plan or need assistance with reviewing and analyzing your budget, please contact our team.