By implementing a rolling budget, businesses can enjoy a range of benefits, such as:
A rolling budget can easily be revised as needed due to shifts in the market or changes in consumer behavior. This ensures that your projections remain accurate month-to-month and gives you greater insight into potential outcomes related to your return on investment.
Help mitigate risk
Having access to up-to-date financial data is essential for businesses to identify and mitigate risks effectively. A rolling budget provides a continuous stream of financial information, allowing businesses to monitor their financial performance and identify potential issues as they arise.
Rolling budgets provide more timely and accurate information, which allows companies to make better-informed decisions about their spending and resource allocation, investment decisions, and other strategic initiatives.
Rolling budgets can enhance communication both within a company and with stakeholders. By providing up-to-date financial information, a rolling budget ensures that everyone is working towards the same goals.
When reporting to stakeholders, a rolling budget can provide more accurate and reliable financial projections, enhancing credibility and trust. This can result in better support and more funding opportunities for the business.
Drawbacks of implementing a rolling budget
As with any business practice, rolling budgets have both advantages and disadvantages. It is crucial to be aware of the potential downsides of this approach to ensure that your company is prepared for any possibility.
Time-consuming and labor-intensive
Rolling budgeting usually requires extensive planning and collaboration among multiple departments to ensure accurate financial forecasts. This process can be time-consuming, particularly during month or quarter-end closing or audits.
Lack of long-term planning
Rolling budgets may have a disadvantage of focusing on short-term planning, which can limit businesses' long-term perspective. While short-term planning is important, businesses need to consider their long-term financial goals and objectives as well. It is crucial to strike a balance between short-term and long-term budget planning to ensure a comprehensive view.
How to implement a rolling budget
Effective planning is crucial for the success of any project, and implementing a rolling budget is no exception. Here are the steps you can follow to implement a rolling budget:
Set a budget period
To create a rolling or continuous budget, start by selecting an appropriate budget period, such as a year, and deciding how frequently you want to update it. Monthly or quarterly updates are the most common for rolling or continuous budgets.
The next step in creating a rolling budget is to gather historical financial data and consider the business's future plans and SMART goals. This step is essential for developing an accurate and effective rolling budget.
By analyzing past financial performance, businesses can identify trends, patterns, and potential challenges that could affect their future financial performance. This analysis can help businesses develop realistic estimates for future revenues and expenses.
For example, if a business has experienced seasonal fluctuations in sales in the past, they can use this information to adjust their future revenue projections accordingly.