Businesses are constantly evolving, and changes that impact the bottom line can happen in the blink of an eye. Traditional budgets are usually issued on an annual basis and are not flexible enough to reflect these changes. For this, financial advisors turn to rolling forecasts.
Rolling forecasts make it possible to analyze financial health in the present and predict future results with considerable accuracy. They are updated continuously and allow for testing hypothetical scenarios, making them an invaluable tool for businesses.
To get it right, there are several key considerations for financial advisors tasked with creating, maintaining, and analyzing a dependable rolling forecast. Let’s take a deeper look.
What is a Rolling Forecast
A rolling forecast is a financial forecasting technique that allows you to prepare continuously for a predefined timeframe.
For example, if the business cycle is one year, a rolling forecast will always show the next 12 months. As the month of July is completed for the current year, a forecast for July of the following year will be added to the forecast.
One of the main advantages of rolling forecasts is that they can take into account a variety of scenarios. Financial advisors can create a variety of potential financial outcomes using scenarios, or "what-if" analysis, based on a collection of assumptions and main drivers.
Static vs rolling
Static budgets are an excellent tool for putting together a rough plan for resource allocation in the year ahead, but rolling forecasts are more accurate for day-to-day reference.
Static budgets have a time and place, but they are inflexible compared to a rolling forecast. They take time to create and upgrade, and may lose some value as the business environment evolves. For example, the inflexibility sometimes lead to workers losing confidence in the budget as the year progresses.
Rolling forecasts differ from these static budgets in that they enable continuous evaluation of the business, both for the near and distant future.
Best practices for rolling forecasts
While a data platform like Causal is ideal for rolling forecasts, the technology is only as reliable as the data you feed it. That said, there are a few best practices that will help you ensure your rolling forecasts are as accurate as possible.
Keep goals in mind: A rolling forecast is designed to help maintain a reliable forecast of the business’s financial status to help guide decisions. Your company’s specific goals will guide which forecasts are included, the length of time of the forecast, and other key drivers.
Evaluate data sources: Taking the time upfront to ensure data sources are accurate will prevent uncovering issues down the road. Faulty data will render forecasting useless. While you can adjust the information moving forward, it may be too late if you’ve already used forecasting to make decisions. Data sources should be spot-checked regularly.
Consider potential variables: You’ll need to keep a pulse on market trends, economic changes, or internal events within the business. It’s your job to monitor trends and keep a forward-thinking mindset when it comes to decisions that could affect financial forecasting.
How to manage a rolling forecast
Managing a rolling forecast is an important responsibility because many major business decisions will be based on the predictions made by the forecast.
Ideally, multiple departments and team leads should be involved in building and maintaining the rolling forecast. By including stakeholders from various areas of the business, you can prevent overlooking key objectives or events that might impact forecasting. Here are a few tips for making managing the rolling forecast more streamlined:
Compare actual performance
Compare the actual performance of the business to your forecast on an ongoing basis. In doing so, you may find gaps or uncover areas for improvement. Monitoring the reports regularly may even help uncover account errors or missing information.
Introduce new elements slowly
Rather than trying to get a complete view of every department in the business immediately, it may be wise to start small with either a less detailed overview of the business as a whole or by implementing one department at a time. Trying to complete everything at once may be overwhelming and can lead to mistakes.
Create multiple scenarios
As mentioned previously in this article, even slight changes in variables can have a huge impact on the accuracy of your report. Plan for multiple scenarios and keep a lookout for new situations that could be on the horizon.
Analyze the big picture
C-suite executives and important stakeholders are unlikely to be interested in the minute details of the rolling forecast. They will, however, be very interested in how your findings impact the business. As you analyze the forecast, be on the lookout for key takeaways such as areas for improvement in efficiency or profit. Providing this kind of information in an easily digestible format will secure your team’s importance to the business.
Find a tool that makes it easy to collaborate across teams
Causal can help with organizing your data, displaying the data in an experience that makes it easy for spreadsheet-novices and math whizzes alike. It’s also great for the what-if scenarios we mentioned earlier, allowing you to dig into your forecast in insightful ways. And with collaboration built into the platform, it’s easy to share data and swap ideas with stakeholders.
Roll with it
Rolling forecasts help businesses understand the present financial status and plan for the future. The complexity of creating, maintaining, and analyzing a rolling forecast depends on the size and scope of the business. However, all businesses can benefit from creating a rolling forecast of some kind to help interpret trends and uncover key revenue drivers.