How to Choose between Rolling Forecasts and a Static Budget
There’s no one answer to the question, “Which budgeting model is right for you?” Different budgeting models have different pros and cons. Learning about those pros and cons, though, isn’t helpful unless you also know how they’ll affect your individual business.
What’s the Difference?
Static budgets are fixed financial plans calculated for a set period of time, typically one year. These budgets stay the same regardless of fluctuations in the market or business earnings over the course of the year. For example, a marketing budget set at $50,000 for the 12-month budget period stays at $50,000.
Rolling forecasts are designed to change and adapt throughout the year. Businesses set periods for re-evaluation, typically on a monthly or quarterly basis, and adjust the budget model in to reflect industry or economic changes. For example, you might set a marketing budget at $12,500 per quarter for the next four quarters. Then at the next evaluation, you could respond to changes in sales by raising or lowering this number.
Choose Static If …
The rigidity of a static budget makes it the best choice for businesses that experience little fluctuation to their business model. There’s no need to switch to rolling forecasts in a business characterized by minimal growth, predictable sales, and a stable industry.
Static budgets are simple and less time consuming, which makes them a good choice for small businesses. Keeping up with a rolling forecast involves large amounts of time devoted to tracking market trends and re-doing your budget. If you’re not ready to do that in your financial department, then a static budget is the right choice for you.
Choose Rolling If …
A static budget can’t accurately predict the financial needs of businesses experiencing rapid growth and/or industry fluctuations. At least not over long periods of time. It does require more work to collect data and adjust financial predictions. But that will pay off in businesses where static budgets just don’t stay accurate.
When you implement a rolling forecast, you create a business model that can adjust in response to new data. This lets you more rapidly adapt the financial plan to changes and keep it up-to-date. It also increases your control over finances.
In both types of financial planning, the finished budget or forecast is only as good as the data you’re working with. For increased control over and better access to your data, consider investing in business process improvement software.
NextProcess offers the only suite of software that provides modules to power and simplify your capital project management, procurement & purchase orders, accounts payable, travel & expense, and payment disbursements. We designed these modules to seamlessly work together and integrate with systems like Oracle, Microsoft Dynamics, and Netsuite. Contact us today to learn how we can help you control your finances and make more accurate financial predictions.