Budget season is crucial for financial teams, as it determines the company's growth prospects. However, teams shouldn't only focus on business budgeting for a month or a year. They should forecast and plan for them all year long. By using continuous financial planning, financial professionals can control costs, manage investments, seize opportunities, and minimize risks.
Continuous financial planning is more advantageous to companies for several reasons. Let's discuss those along with what you need to create a powerfully-built budget.
Continuous Financial Planning Defined
Continuous financial planning or rolling budgeting consistently adds another month or quarter to the current budget as time passes.
How Does a Rolling Budget Differ from the Annual Process?
There are several ways a rolling budget process differs from the more traditional, 12-month budget creation process. These differences can have a big impact on the way the business is managed in the short and long term.
How Frequently It's Updated
With a traditional budget, it's all about getting a year's worth of planning into the document. The costs and expenses are set well in advance. A rolling budget, however, is updated, added to, and revised regularly (sometimes as often as every month).
The Level of Adaptability
The financial team will typically need to "jump through hoops" if they decide to change a traditional budget. They may even need to add a budget amendment, which can suck up time. Continuous budgets offer greater flexibility than a static budget. A budget can be adjusted throughout the year to include new developments or results that can be studied.
The Data Used
Every type of business plan is more valuable if there are strong, accurate data driving it. The data traditional budgets and ongoing budgets tap into varies. Using past data to predict future trends is the main way to create traditional budgets. Continuous budgeting, however, depends primarily on forecasting and running "what-if'' scenarios to guide the planning.
Benefits of Continuous Financial Planning
Organizational financial planners may realize numerous advantages when they adopt a continuous budgeting practice. These benefits can have far-reaching consequences that impact the company's viability and market position.
If companies operate with a "set in stone" budget, they don't have much wiggle room in their decision-making. If an opportunity arises, a traditional budget may not provide a way to capitalize on your competitive advantages. When the market or competition poses an unexpected threat, the company may not be able to respond quickly enough to protect itself.
With an ongoing budget, financial teams have more room to change and respond to opportunities and risks. This gives them a better chance of strengthening and protecting the company faster and more effectively.
Reduces Process Waste
As the financial team works through a rolling budget, they may identify unnecessary costs and bloated processes that can be easily managed. This saves the company money it can use toward revenue-generating activities.
Provides a More Accurate Company Snapshot
More frequent updates mean that you're using information that is fresher and more accurate. Instead of working with year-old (or older) data, the financial team can assess company financials with up-to-date data from the current market. Working from this position offers more intuitive decision-making and more robust financial reports.
How to Set Up Your Company for Continuous Planning Success
If your organization wants to take advantage of the many benefits a rolling budget provides, certain considerations go into moving away from a traditional budget.
Don't assume everyone who's been involved in budget season will automatically jump on board with this change. Most people feel comfortable with a status quo, which can be a distinct obstacle to your ongoing budgeting plans.
Explain why you're making the change and give specific examples of how it will positively impact the company. Include everyone who will be involved with the new process from the beginning, so they can feel engaged and heard. Provide consistent, transparent updates during the process, and make sure everyone understands their role.
Secure the Proper Resources
Smaller businesses may especially struggle with the additional resources a continuous budget takes. Additional hours, investments in tools, and other potential expenses need to be laid out and planned for in advance.
Choose the Right Technology Tools
After gathering the budgeting team, it's crucial for them to have the right FP&A tool to facilitate their work. Manual, repetitive processes aren't going to cut it. Investing in financial planning analysis software, collaboration tools, and other tools that align stakeholders and automate the process is integral to its success. Your company's tech stack must flow seamlessly and create a robust, simplistic process from beginning to end.
Work with Multiple Scenarios
One of the best benefits of a continuous budget is the ability to bob and weave as needed. By using multiple dynamic scenarios in your planning, the financial team can build a robust financial model and proactively plan for different paths to success.
Focus on Long-Term Results
Since a budget focuses on the next month or quarter, it's easy to fall into a myopic focus that doesn't look beyond the next time period. Avoid doing this by always keeping the company's long-range goals and priorities front and center. Talk about them, discuss how close you are to reaching them, and plan steps to achieve them in every portion of your continuous budget plan.
Rolling Budgets May Be Your Company's Best Option for Success
The many advantages of rolling budgets are finite and obvious. However, implementing such a dramatic change in your organization requires considerable forethought and planning. By executing it properly, employing the right stakeholders, and investing in powerful technology, an ongoing budget can help your company access more opportunities, guard against threats, and forge a stronger, more competitive organization for the long run.