To stay competitive and agile as a small business, it may help to adjust your budgeting style. A rolling budget may be the right strategy for you. Sometimes referred to as a continuous budget or a rolling forecast, a rolling budget is a budget that is continuously updated and extended, usually monthly or quarterly. To implement a rolling budget, you would add a new period as the most recent one ends. This is in contrast to the annual budget, which is set for the entire year. A rolling budget allows your business to adapt more easily to changing market conditions.
"One common complaint about the standard annual budget is that it becomes out of date over the course of the year because the environment in which the business operates – the economy, the industry, the competition – is constantly changing," says Chron.* These changes impact the company's operating results. An advantage of the rolling budget philosophy is that it recognizes the difficulty of anticipating what the business environment will be one year from now. The small-business owner adjusts the forecast during the year in response to changes in the business environment."
Following are seven tips for implementing a rolling budget.
1. Start From a Good Place
As you implement your budget, you'll need to have a good starting point. Make use of recent historical data to come up with a reasonable baseline for your revenues, as well as expenses. You can use this as an initial forecast, which you can then update as the period ends. If you've used annual budgets in the past, you can use that as a starting point, and then refine it as time goes on.
2. Determine the Right Update Cycle
Figure out what the best update cycle is for your rolling budget, whether it be monthly or quarterly. This will ultimately depend on the pace of your business. If you go the monthly route, you can increase your business's agility. This might be the right option if your sales or costs fluctuate significantly. If they are more stable, the quarterly update might make more sense as it will require less effort.
3. Utilize Technology
Whichever update cycle you use, it can be helpful to utilize technology for managing your budget. If financials are your least favorite part of running a business or you're just not great with numbers, software can be a lifesaver. Either way, it can make your job easier. Use accounting or financial planning tools that offer rolling budget features. Research different options. Many will automate updates and help you reduce errors. They may also include features for scenario planning, cash flow forecasting, and customizable reports.
4. Monitor Performance
As time goes on, it's essential to monitor performance so you can make the necessary adjustments.
"To monitor your rolling budget's performance, start by setting up a system for tracking your actual financial results, such as a spreadsheet or financial management software," says Mailchimp.** "Once you have recorded your actual results, compare them to your financial budget and calculate the variances. As the final step, analyze the variances to identify any differences and determine whether any corrective actions are necessary."
5. Track Key Drivers
As you monitor performance, it's important to identify and track the key drivers of revenue and costs. These have a direct impact on profits. Look at things like sales volume, customer acquisition costs, and labor costs. Key drivers may vary from business to business.
6. Keep Your Team Involved
Don't put the weight of your budget entirely on your own shoulders. Include key team members, such as department heads. Their insight may be able to help improve forecasts while also encouraging accountability throughout the company. Have discussions with team leaders in operations, finance, sales, and marketing. It can be beneficial to hold a monthly or quarterly meeting to review performance and update forecasts.
7. Be Patient
Your rolling budget might not turn out perfectly from the start. Consider it as a process that you can refine as time goes on. That's actually one of the key benefits of this budgeting strategy. Learn from your reviews and make smart, well-informed adjustments. If it isn't going as well as you'd hoped, give it some time before shifting your entire budgeting strategy.
It is entirely possible that an annual budget makes sense for your business, but the above tips should help you find success with the rolling budget option. Successfully implementing this strategy should help your business stay agile and deal with future challenges.
* https://smallbusiness.chron.com/advantages-disadvantages-rolling-budget-62686.html
