Forecasts and Budgets – Fixed vs. Rolling

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A fixed budget covers a fixed period of time.  Once it’s set, you compare quarterly performance to the budget.  The year-end forecast tells you how much you can spend for the rest of the year.  If conditions change – a new competitor launches an advertising blitz or material costs drop suddenly – you’re stuck.  Either you don’t act and stay within budget, or you make the unforeseen expenditure and cut later on.

The rolling forecast looks five quarters ahead – through the following year, plus one quarter – and is updated each quarter.  On June 30, for example, you look at the remaining two quarters of the year and the next three quarters of the upcoming year (five quarters total).  Rolling accomplishes two things:

  1. Gets managers away from their year-end focus, and
  2. Allows for targets to move as conditions change.

This lets companies take advantage of unforeseen opportunities or shore up resources.  It also forces less detail – another positive.  The rolling budget then gets set based on the rolling forecast and additional resource allocation decisions.

Business planning is essential for business prosperity.  Businesses, like people, don’t plan to fail – they fail to plan.  If you would like to learn more about developing a rolling forecast & budgeting system from a biblical perspective or how a part-time, virtual CFO can help transform your business using the Bible as our guide, email me at commonsensecfo@yahoo.com or call Kirk at 402-658-7340.

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