It is important that an effective business plan establishes a comprehensive relationship between budgets, long term strategies and short term operating plans. The process begins with developing a rational mission that will consider the needs, wants and desires of the organization. Once a rational mission has been established a budget that is within the company's limits can be drawn. Budgeting is critical to any organization since money is policy. A budget provides an overview of the inflows and outflows of cash within a company and helps to determine the ability of a company to pay its current expenses. The strengths of having a budget include strategic planning, accountability and integrity. Strategic planning aids in handling various issues according to the level of importance, that is, the organization sets its priorities right[Bec08]. This way, the very urgent issues are tackled first. .
Accountability, which makes the department and service line managers in charge of the budgeting process accountable of any cash flow transactions, is equally vital. It enables the organization to conduct its activities with transparency and integrity. The department and service line managers are held accountable by the management through clear statement of the consequences to be faced in cases where they cannot account for a particular transaction. The relationship between budgets, long term strategies and short term operating plans occurs in numerous dimensions. Budgeting helps in short and long term planning. Nearly all programs of an organization must be acted upon annually. This calls for prior planning to facilitate all processes and transactions. In addition, the organization not only focuses on its short term and day to day goals but also on the long term goals due to prior planning. Budgeting also pre-empts unnecessary expenditures through short term operating plans. It is also with a budget that cash allocation could be determined [Bec08].
