Long-range budget definition

A long-range budget is a financial plan that extends for more than one year into the future. This type of budget typically covers a five-year period and is focused on the strategic direction of the business. The orientation of this budget is toward the following areas:

• New product planning. The budget can incorporate estimates for when old product lines will be discontinued and when new ones will be added, including the funding for roll-outs through new distribution channels.
• New capital investments. The budget can include planned spending on new capital projects all the way through the planning period. This is a good basis for the discussion of funding sources, as well as how expenditures can be used to support new lines of business.
• Proposed acquisitions. The budget can include funding for general areas of acquisitions, without delving into the identification of exactly which target companies will be bought. This is useful for analyzing how much it will cost to enter new market niches or bolster existing ones.
• Risk management issues. The budget can incorporate the cost of proposed risk management strategies, so that management can contemplate what it will cost to lower risk levels in certain key areas of company operations.

Since changes in competition levels and the business cycle make it difficult to plan this far into the future, the long-range budget typically aggregates much of the information found in an annual budget into a smaller number of line items. It may be contained within just one page, or perhaps a few pages. As such, it is generally much smaller than the annual budget.

Management rarely compiles long-range budgets when a business is located in a new market, since the market is changing too rapidly to make such planning worthwhile. It is more common in established industries.