Finance

Rolling Budgets, Explained

Pros, cons, and how to implement

Budget season is one of the busiest times of the year for many finance departments. After all, people across multiple teams with their own interests have to give input, leading to multiple rounds of edits before executive leadership even reviews.

However, what happens after the budget is finalized and released? It’s impossible to predict the future, and unpredictable events (like Coronavirus) can derail the budget entirely. That’s why many companies have implemented a rolling budget.

What is a rolling budget?

By using a rolling budget, a business always has updated insights one year into the future of their budget. Rolling budgets are also referred to as “continuous budgets.” A rolling budget is updated on a regular basis to add a new budget period as the previous one expires. As a result, the rolling budget is a gradual extension of the present budget.

Traditional budgeting documents are organized similarly to rolling budgets. A rolling budget summarizes your company's revenue, expenses (both fixed and variable), and profits. Using your existing figures, you will adjust your revenue and spending projections. Under this method, someone is always monitoring the budget model and revising budget assumptions.

Benefits of a rolling budget

Rolling budgets offer many benefits, including better planning, increased adaptability, and higher visibility.

A rolling budget is better for planning because they give a more accurate representation of the business’s financial state at any given time. This enables the business to plan for investments large expenses that may be upcoming. Budgets are an important tool for decision-making, so having an accurate budget that reflects not only today, but also the future, is very valuable for leaders.

Since rolling budgets account for surprise expenses, they enable increased adaptability. Rather than rendering the current budget useless, changes are more easily managed. Additionally, surprise expenses can be made up for in future months. This can be reflected in a rolling budget, whereas it would be difficult to demonstrate in a static budget.

Rolling budgets also give more visibility across departments. Everyone involved can see when the budget has changed without waiting for another edition of the static budget to be released. Additionally, it’s easier for different departments to help one another out with budget constraints. If the tradeshow department realizes that they will have leftover budget for the year while the sales team has used theirs up, they can offer to assist so that budget is being used effectively.

Rolling budgets do, however, have downsides. Since rolling budgets require more manual effort and continuous monitoring, they can be time-consuming. Also, because budgets are constantly changing, the adjustments can be time-consuming and frustrating for employees. This is a great example of how a data platform like Causal can help. With APIs that plug directly into your databases and built-in templates, you could save budget managers critical time to focus on nailing their tasks and strategic goals instead of pushing numbers around a spreadsheet.

How does a rolling budget differ from other budgets?

Typically when people refer to a budget, they mean a static budget. A static budget is a fixed projection of future revenue and expenses over a certain period of time, whereas a rolling budget forecasts the financial situation as conditions change.

A static budget is typically developed annually with input from multiple departments. It gives leadership an easily interpretable overview of the financial projections for the year. It’s based on performance from the prior year, current market trends, economic factors, and any information known about the year ahead such as major expenses.

A rolling budget is a better way to see the budget in more detail. For example, a static budget shows the overall results for the year, but it doesn’t show how the budget may vary by quarter. The holidays may be especially profitable for some companies, while other seasons may operate under a tighter budget. These distinctions are impossible to see with a static budget.

Creating a rolling budget?

As mentioned above, creating and maintaining a rolling budget can take a lot of manual work or the help of a great tool. Implementing a rolling budget will not be easy on everyone and may be met with some resistance initially. Begin your rolling budget implementation by assigning someone to have direct control over the process. Designate employees to create the initial budget and inform all necessary staff of budget decisions. Be understanding and supportive as your team navigates this change. Advocate for the benefits and objectives of implementing a rolling budget so that everyone feels invested in this change and remains motivated.

The other factor to consider is how often you want to update the rolling budget and what length of time it will show. If your business experiences frequent changes like new products or fast growth, you may want a monthly rolling budget. For other businesses, a quarterly budget works well. If it’s very important for your business to plan for the future, you may want a rolling budget that shows five years on an annual basis.

You’ll also need to determine what tool you’ll use. Of course, basic spreadsheets can be used to create a rolling budget. However, this becomes tricky if you want multiple people to have input and visibility and you want updates shown in real-time (which is one of the biggest attractions of a rolling budget). Some companies start with a spreadsheet before investing in more advanced software.

Monitoring and adjusting the rolling budget on a regular basis ensures it always reflects the company’s latest information. It should be clear who has this responsibility, and that may mean new hires.

Roll with the budgets

Rolling budgets help companies more accurately plan for the future by showing the latest information at any given time. Since the budget is continuously updated, it gives everyone in the company more visibility into the true financial status of the business. Leveraging Causal could save businesses lots of time and hassle staying on top of the numbers, and with a free program, there’s no reason not to see what Causal can do.

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