Effective budgeting is essential for strategic decision-making and financial stability in businesses. You might be aware of static budgets, which have always been the norm, providing a set financial plan for a fixed period of time. However, as businesses progress, the limitations of static budgets become apparent, prompting the adoption of more flexible and adaptive approaches.
Enter rolling budgets! Unlike their static counterparts, rolling budgets allow businesses to continuously update and adjust financial plans, aligning them with changing conditions in the real world. Read on to explore more with Brixx.
What is a rolling budget?
A rolling budget is a financial planning approach where the budget or forecast is regularly updated by adding a new budget period as the current one expires. It is often referred to as a continuous budget or a rolling forecast.
Rather than creating an entirely new budget at fixed periods of time (e.g., annually or quarterly), a rolling budget will extend the planning horizon by replacing the expired period with a new one.
Here are some key features and benefits of a rolling budget:
Dynamic planning: Rolling budgets improve dynamic planning and forecasting, as the budget is continuously updated to reflect changing circ*mstances.
Flexible planning: Since rolling budgets are updated often and frequently, they provide greater flexibility in adapting to changes and adjusting targets as needed.
Improved accuracy: Rolling budgets include recent data and analytics, so tend to be more accurate than static budgets that are fixed for long periods.
Optimize resources: By adjusting resource allocations and priorities, rolling budgets help optimize resource utilization and improve efficiency.
Alignment with business cycles: Rolling budgets can be aligned with the natural cycles of a business, allowing for more relevant and timely financial planning.
Overall, a rolling budget offers greater agility and responsiveness compared to traditional static budgeting methods, making it particularly suitable for businesses operating in dynamic and uncertain environments.
When should a rolling budget be used?
A rolling budget will typically be used in dynamic and uncertain environments where traditional static budgets might not be as effective. Here are six times a rolling budget should be used:
Within highly dynamic business markets
Industries that have rapidly changing market conditions can benefit from rolling budgets. These environments will require frequent adjustments to financial plans to stay competitive.
Businesses that are seasonal
Companies that experience seasonal fluctuations in sales or expenses can use rolling budgets to adapt to changing patterns throughout the year.
Across new startups
Startups and fast-growing companies often face uncertainty and rapid changes. Rolling budgets allow them to continue to adjust their financial plans as they learn more about their market and customers.
Businesses that are project based
Companies that operate on a project basis can benefit from rolling budgets. They can manage the financial aspects of multiple projects with varying timelines.
Businesses that value flexibility
Rolling budgets are useful for businesses that require and value flexibility and agility in their financial planning process. They allow for ongoing evaluation and adjustment of goals based on the most current information available.
What are the types of rolling budgets?
There are a few different types of rolling budgets, each tailored to suit specific business preferences or requirements.
Continuous rolling budget
When each budget period (e.g., month, quarter, or year) ends, a new budget period of the same duration is added. This will extend into the future, providing ongoing visibility and flexibility in financial planning.
Incremental rolling budget
A new budget period is added throughout regular intervals (e.g., every month or quarter), but the length of each budget period remains constant. This approach allows for regular updates to the budget while maintaining a consistent planning horizon.
Fixed period rolling budget
The length of each budget period is predetermined and remains unchanged. When a budget period ends, a new period of the same duration is added. This framework allows for ongoing financial planning and control.
Variable period rolling budget
This allows for improved flexibility in the length of each budget period. The duration of each period can vary based on business needs. It is particularly useful for businesses with irregular or unpredictable cash flows.
Hybrid rolling budget
A hybrid rolling budget combines elements of the previously mentioned approaches to create a customized budget that meets specific business requirements. For example, a hybrid approach might include features of both continuous and incremental budgets to balance long-term planning with short-term flexibility.
How to prepare a rolling budget
Preparing a rolling budget involves several steps to ensure its effectiveness in providing ongoing financial planning and management. Here’s a general guide on how to prepare a rolling budget:
- Define your business’ budget period
- Establish the initial budget
- Identify any key assumptions like inflation or revenue rates
- Monitor your business’ actual performance
- Analyze any variances or discrepancies
- Update the budget based on your analysis
- Roll your budget forwards as periods expire
- Communicate to stakeholders and continuously review
- Repeat the process
- Evaluate again, and improve
By following these steps, your business can effectively prepare and maintain a rolling budget.
5 advantages of rolling budgets
Rolling budgets offer several advantages over traditional static budgets, especially in dynamic and uncertain business environments. Here are some key advantages of rolling budgets:
1. Flexibility of plans
With the ability to continuously update and adjust financial plans, rolling budgets provide excellent flexibility to adapt to circ*mstances and seize new opportunities.
2. Improved budget accuracy
By updating information on an ongoing basis, rolling budgets tend to be more accurate than static budgets. This increased accuracy improves the reliability of financial forecasts and supports better decision-making.
3. Continuous performance monitoring
With ongoing monitoring of financial performance and regular updating of actuals against budgeted figures, rolling budgets allow for a continued monitoring over time.
4. Enhanced accountability
Rolling budgets encourage businesses to regularly review and adjust their financial plans in line with objectives. This increased accountability fosters a culture of responsibility and transparency, driving improved performance.
5. Strategic planning support
Rolling budgets allow strategic planning due to the ability to evaluate the long-term implications of financial decisions over time. Management can make more informed strategic decisions and align financial plans with overarching goals.
5 disadvantages of rolling budgets
While rolling budgets offer various benefits, they also come with some potential drawbacks and challenges. Here are some disadvantages of rolling budgets:
1. Complexity
Rolling budgets can be more complex to manage compared to traditional static budgets. The continuous updating and revision process will require extra time, resources, and expertise to ensure accuracy across budget periods.
2. Resource intensive
Significant resources may be required to maintain a rolling budget. This will include potential software used, personnel required, and other variables to allow for monitoring, analysis, and updating. Small businesses may find it challenging to provide sufficient resources to effectively manage rolling budgets.
3. Potential for over-adjustment
Frequent updates and revisions in rolling budgets may lead to over-adjustments in financial performance. This can result in unnecessary volatility in budgeted figures and undermine long-term planning and strategic decision-making.
4. Resistance to change
Traditional budgeting is the norm, so rolling budgets may face some resistance from stakeholders. Businesses may be reluctant to adapt to the ongoing updates and revisions required by rolling budgets, preferring the stability and predictability of static budgets.
5. Dependent on assumptions
Rolling budgets rely heavily on assumptions. If these assumptions turn out to be inaccurate or overly optimistic, it can lead to inaccuracies between budgeted expectations and actual results.
Manage Rolling Budgets in Brixx
Brixx is a popular tool for managing rolling budgets, offering a user-friendly platform to streamline the budgeting process.
Once you have set up your account, or started your free 7-day trial, you can input all of your company data. This includes currencies, finances, and any other relevant details. Once inputted, your initial budget can be created and monitored. Over time, you will be able to analyze any variances between your actual and forecasted figures, something that is essential in the rolling budget process.
You will be able to update your budget based on the data gathered, and then roll forwards by adding a new period of time. One of the best features of Brixx is the ability to create multiple scenarios – so don’t just roll forward one instance of your budget, test and analyse different options dependent on your circ*mstances and changing market conditions!
The reports in Brixx are simple and easy to understand, and the ability to share with team members and stakeholders is essential in the process. Get started today to see how well Brixx can work for you!
By leveraging Brixx’s features and capabilities, you can effectively manage rolling budgets, enhance financial planning and analysis, and drive better decision-making within your business.
