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Prepare for Tomorrow: Rolling Budgets & Rolling Forecasts

June 21, 2022
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For most businesses, the current economic circumstances - and looking at what may lay ahead - haven’t just resulted in financial uncertainty, it’s also brought to light the inherent challenges with using conventional budgeting methodologies to track and anticipate future business performance. If companies want to be prepared for the months and years ahead and anticipate future successes and failures, they need to adopt new means of prediction.The answer? Implementing rolling budgeting, rolling financial forecasting, and mid-year forecasts.

Better Predict Outcomes with a Rolling Budget

Companies need budgets to set realistic goals for the future. Also known as a continuous budget, a rolling budget is regularly updated to add new budgeting periods as the previous ones expire. It gets its name from the fact that expired budgets are rolled over into the next period, so the cycle is always moving. In this sense, companies consistently have budgets that stretch a year into the future.Rolling budgets come with a number of advantages, including the ability to better predict outcomes and plan for where your company is headed. However, developing a rolling budget is not without its challenges. Not only does creating rolling budgets require more managerial attention, as adjustments must be made each month or quarter, but the labor involved is also typically greater.Fortunately, software tools can help minimize the time and resources required, helping companies get the data they need with less frustration.

Plan Ahead with a Rolling Forecast

Like rolling budgets, rolling forecasts provide companies with future numbers for use in planning and management. To create a rolling forecast, businesses utilize historical data to predict results continuously over a given period. With a rolling 12-month forecast, previous months drop off as new ones are added. In this sense, businesses can always see a year out from their present position. Along with aiding in financial reporting, supply chain management, and budgeting, rolling forecasts play a key role in decision making.It’s worth noting that rolling forecasts offer more agility than traditional ones. Rather than providing numbers for a single period, rolling forecasts tell you what to expect next month and the one after. As a result, companies can always be planning for the future. This ability is especially crucial in a turbulent economy, where circumstances on the ground are often changing rapidly.

Rolling Forecasts: Factors to Consider & Best Practices

If you’re considering moving to a rolling forecast system, there are a few factors you should think about as they pertain to your organization.Here’s what to consider: Agility Management teams want to be able to make decisions more quickly based on live numbers, not just projections.Rolling financial forecasts help do this by having a constant stream of updated data in the system. Decisions made in the third or fourth quarter of a fiscal year aren’t dependent on projections that are eight to twelve months old with a rolling forecast. Instead, these numbers will have been updated in the last month or quarter (depending on the structure of your system). Flexibility Rolling financial forecasts enable decisions to be made on a more operational level, which is something many organizations see as a strategic boon.Businesses want to create synergy between the financial and operational sides of the organization. The goal is to make it easier for the management team to understand trends and opportunities as they arise and have a plan in place, rather than trying to decide on the fly with incomplete (and often incorrect) information. Continuous Planning The ability to set up a good year-round system for continuous planning is another key factor. Rolling forecasting removes the time and energy suck of doing all the planning and financial forecasting at one fixed point during the year. It also allows for more coordination between departments, making the finance team a key player in the operational side of the business.Now that we’ve looked at some of the key factors to consider, you should also keep some best practices in mind when it comes to rolling forecasting:

  • Avoid Excel: Excel simply is not powerful or sophisticated enough to generate the information you’ll need to perform rolling quarterly forecasts accurately.
  • Plan Your Duration: Before you do anything, first decide the duration of your forecasts (how long the forecast should be) and when a new period should be added.
  • Know Your Drivers: One of the biggest keys to success in rolling financial forecasting is that it is primarily driver based, so it’s very important to know those key business drivers, how to measure them and what to track before you begin.

Mid-Year Forecasts: The Importance of Doing Them Today

Now that we are at the mid-year point, most companies are thinking about their future financial goals as well as issues that have gone wrong in recent months. To that end, it’s a great time to engage in mid-year reforecasting. Along with being a great opportunity to review the goals laid out at the end of the last year, reforecasting lets you examine how your company is performing in light of those objectives. For example, companies may determine that they’ve failed to meet key financial targets or deliver goods or services as intended. In some cases, missed goals are due to labor issues, while other times market changes are to blame. When completing mid-year forecasts, it’s important that budgeting and financial forecasting work hand in hand. After all, you can’t craft a budget with realistic spending and expenses information without a solid business forecast.Once companies determine where mistakes were made, they can take steps to correct them. Businesses may opt to hire new personnel or move team members from an area with more resources to one that’s currently lacking. Companies may also choose to set new goals based on the situation on the ground. Even if everything is working as intended, a mid-year forecast can enable companies to assess their goals for the next two quarters and determine if they have the resources and personnel needed to achieve them.

How Modern FP&A Helps Companies Plan for Today and Prepare for Tomorrow

When it comes to financial planning, today’s companies need to be smarter and more agile when preparing for the months and potentially years ahead. Fortunately, modern software tools allow companies to plan for the future with ease and accuracy. Also known as FP&A tools, financial planning and analysis products offer a set of activities, including budgeting and financial forecasting, that supports a business in making decisions and maintaining fiscal health.A leader in financial forecasting services for small and mid-sized businesses, Centage’s Planning Maestro, a cloud-based, modern FP&A software gives you the data you need to see where your company is headed and to course correct where necessary. Here are some of the features that come with modern FP&A tools like Planning Maestro:

  • Generating Statement of Cash Flows and Balance Sheet, P&L Statement, and more management reports
  • Allowing for collaboration across multiple plan and budget owners
  • Offering the ability to forecast multiple scenarios and determine how and why actuals differ from plan
  • Enabling faster response times to real results
  • Determining risks, opportunities, and variances

Whichever direction you choose to pursue - a rolling budget, rolling forecast, mid-year forecasting - or all of the above - it’s important to find a system that will benefit your business by providing accurate information to help you make the right strategic decisions today so you can be better prepared for tomorrow.

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