Maybe you read our blog post Why Your Small Business Needs a Budget – 4 Compelling Reasons You Can’t Ignore. Maybe you listened…maybe you didn’t. Don’t worry though, even if you didn’t. It’s never too late to start budgeting. In this blog, we tell you why using a rolling forecast can help any business, at any time get things in order and plan for their small business’s future.
Forecasting (like budgeting) involves future projections. Traditionally businesses look at a static period, for example, 1 year ahead in monthly increments. So, if your financial year (aka fiscal year) is January to December, then budgets and forecasts are prepared in the October to December before the new year starts to cover that period. By April, 3 months of business activity has already taken place leaving only 9 months remaining of the forecast. With static forecasts you run the periods down to zero and then start again.
What Is a Rolling Forecast?
With a rolling forecast, the number of periods in the forecast remains constant so that if, for example, the periods of your forecast are monthly for 12 months then as each month ends, it drops out of the forecast and another month is added onto the end of the forecast so you are always forecasting 12 monthly periods out into the future.
Again, as actual financial and operational information become available for a period, it moves from being a future prediction to a current reality (i.e. it is no longer part of the forecast). It then drops out of the forecast and another month is added onto the end of the forecast (you “roll” the forecast forward one month). This way, you are always forecasting 12 months out into the future.
And Here They Are – Top 5 Reason You Need A Rolling Forecast!
Real time response!
- Identifies opportunities and risks in a dynamic business environment in REAL time. Your small business can adapt quickly to volatility and rapid changes in your business’s environment.
No more annual budget process!
- Rolling forecasts allow you to focus on your business forecast in smaller time increments throughout the year, instead of a big push once a year.
No big cash surprises!
- Future cash requirements are always known if a rolling forecast is used with rigor. There are no big surprises come year end when you find out you need to make a big capital or technology investment, for instance.
- Using a rolling forecast forces you to look at your business’s financial performance every month, which we always advocate as a best practice and necessary discipline for a small business.
Culture of Inclusion and Empowerment!
- Rolling forecasts help to bring everyone into the process and align your valuable human capital resources to your small business strategy.
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