Why every business needs to adopt a rolling budget and forecast?
The market these days is in constant flux – funding slow down, rapidly changing technologies, and ever-growing customer expectations. Today’s businesses need to keep up with these changes and pivot quickly based on data-driven decisions. This requires your budgets to also have inherent flexibility built into them. However, most companies still create static budgets with high opportunity costs instead of rolling budgets.
In this article, we’ll explain what a rolling budget is, and how you create one and leverage it to make data-driven decisions.
What is a rolling budget?
A rolling budget, also known as a rolling forecast or continuous budget, is a budget that is updated at a predefined frequency based on the actual data from the most recent period. Rolling budgets can be updated monthly, quarterly, or bi-annually.
Example of a 12-month rolling forecast updated monthly
What is the difference between a rolling and static budget?
A rolling budget differs from a static budget in two main aspects:
- Real-time updates: Rolling budgets are updated at a set frequency. Whereas, a static budget is usually developed and updated annual with minimal changes throughout the year.
- Flexibility: static budgets offer minimum flexibility whereas rolling budgets are designed to be flexible.
Despite its obvious benefits, many companies are reluctant to try rolling forecasts because it can be time-consuming and often data is not available on demand to update budgets. However, with the right technology and processes in place, implementing rolling budgets isn’t difficult. You can explore these financial forecasting software that can aid the process of building rolling budgets.
How do you build one?
Here is a step-by-step guide to how you can build a rolling budget.
Create a strategic budget
Start by creating a strategic budget. A strategic budget is a budget aligned to the strategic goals of a company (3-5 year goals). In order to achieve these goals, companies need to be able to refine their short-term strategy as needed and quickly respond to new opportunities. A change in strategy demands a change in budgets too. Hence, a flexible and rolling budget becomes key to achieving your business targets.
You can create your strategic budget based on any of the four popular budgeting methodologies:
Methods to develop a strategic budget
Turn a strategic budget into a rolling budget
Implementing a rolling budget simply means updating your budgets and forecasts more often than you would normally do.
You need to determine the timeline for your rolling budget – how often you update your budgets and hold your budget review meetings. Whether this will be monthly, quarterly or bi-annually will depend on the market you operate in and your growth goals.
Utilize this budget to make better and more informed decisions
Track and update your budget as per the frequency determined in the previous step. Track your planned vs actuals for all key metrics and identify risks/opportunities. Analyze this data and quickly pivot or make modifications to the current strategy as and when needed.
A rolling budget acts as an early warning sign – allowing you to respond to developing situations before they impact your business significantly. It also allows you to quickly reallocate resources from low-performing initiatives to high-performing initiatives. Now you see why it is important for businesses to adopt rolling budgets.
