You need to create and implement a budget for your business so that your team doesn’t overspend, and you reach your financial objectives. You can implement different types of budgets based on the needs and goals of your organisation. One type you should consider is a rolling budget.

 

Rolling Budget Defined

This budget type follows a dynamic model wherein you add the next period right after the current one expires. You can derive its meaning from its name which is “rolling.” It’s a continuous budget that you can use to allocate your resources effectively.

The most common type of budget is static. This is often a fixed amount that your team allocates and plans for once a year. This planning happens towards the end of the year. The biggest difference between this and a rolling budget is that the latter allows you to update your budget based on the performance of your company. This budgeting approach provides you with flexibility to adjust to the needs of your organisation.

 

Different Types of Rolling Budgets

One of the advantages of a rolling budget is that you can apply it to various aspects of your operations. You can implement this budget type to your:

  1. Master Budget – this covers a year and is the summary of the financial data of other budgets. It enables you to come up with profitability forecasts.
  2. Production Budget – you use this along with your sales forecast to project production volumes and plan your inventory.
  3. Capital Budget – you use this to create a cash flow forecast of the important projects and investments you plan to take on.
  4. Sales Budget – this budget allows you to estimate revenue for a certain timeframe.
  5. Overhead Budget – this budget enables you to forecast costs that fall outside of labour and raw materials.

 

Advantages of Implementing a Rolling Budget

The advantages of a rolling budget make it a feasible strategy for companies that want to use their resources on campaigns and strategies that generate profits. What are the benefits of this budget type?

  1. A rolling budget enables you to respond to fluctuations in the market more effectively. You can update your budget depending on the performance of your products, services, and strategies while adjusting to the changes in your market.
  2. One of the advantages of a rolling budget is that it allows you to adapt based on actual performance instead of basing your decisions on financial predictions. For example, you could adjust your budget if you surpassed your monthly profit objective or if you failed to meet it. You don’t have to wait for the next annual budget planning, if you implement a rolling budget. This adaptability enables you to have financial flexibility to change your strategy. It provides you with more options to improve a campaign and boost your conversion rate.
  3. A rolling budget improves your business decisions. Your short-term forecasts can be more accurate because this type of budget depends on a strategy’s or campaign’s performance. Better business decisions have a positive effect on your company’s bottom line.
  4. You need accurate financial information to know the current state of your business. Inaccurate data leads to poor decisions and strategies that have a negative impact on the trajectory of your company. A rolling budget allows you to access precise data you can use to make better business decisions. This is so because a rolling budget is performance-based. You can also conduct a more thorough SWOT analysis with updated financial data.
  5. A rolling budget improves the accountability of your team because it focuses on the performance of strategies and campaigns. This type of budget pushes your employees to assess your company’s financial performance frequently because of the adjustments you need to make after every month.

These are just some of the advantages of a rolling budget you need to take note of. You can also monitor the monthly performance of your business if you decide to implement this type of budget. Match a rolling budget with key performance indicators that can measure the success of a campaign and/or strategy. This approach enables you to make sure you allocate and use your resources effectively.

 

A rolling budget also comes with caveats. It’s not always beneficial to your company. You’ll encounter some difficulties and disadvantages when you follow a rolling budget. Some of these include:

  1. Implementing a rolling budget is time-consuming because of the constant updates you need to make and monitor. You’ll have to allot more hours to complete this task. This means you’ll also expend resources to compensate your employees.
  2. A rolling budget consumes more resources compared to a static one. You might have to hire new employees to fill in gaps and stretch the work hours you need to allocate to meet the demands of a rolling budget. Your team has to update the budget frequently and monitor the financial performance of your business.
  3. Because of the work and resources required to implement a rolling budget, you might encounter negative comments from your team. They might have to take on more tasks and hours to meet the demands of this type of budget. You’ll need to provide them with incentives to accept the extra workload you delegate to your employees.
  4. You might need to invest in or upgrade your software to meet the requirements of a rolling budget. This investment also helps the team that you will assign to keeping your budget updated regularly. Software simplifies and streamlines some of the work they need to do.

Knowing the advantages and disadvantages of a rolling budget enables you to make an informed decision on whether to implement this type of budget or not.

 

Now that you are familiar with the advantages of a rolling budget you can consider using it long-term. This type of budget provides you with the flexibility your business needs to achieve its financial objectives. If you need assistance with keeping your accounting books updated, you can count on Robookkeeper. Our team of experienced accountants can provide you with first-rate small business accounting services. Our accountants also provide other related services. Reach out to us so that we can customise a package for you.

 

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