Budgeting for small business lets you plan your finances, prepare for setbacks, and predict profitability. There isn’t one standard type of budget you can make. You might decide to use a rolling budget instead of a traditional budget.
Before you create a rolling budget, you need to understand it. And, weigh the pros and cons of using one for your small business forecasting.
What is a rolling budget?
A rolling budget, also known as a continuous budget or rolling forecast, changes constantly throughout the year. When one month ends, add another month at the end of the budget. For example, your budget covers January-December of 2021. When January 2021 finishes, you can add January 2022.
Each time you create your financial statements, you can update your rolling forecast so it has up-to-date numbers. This gives you a more accurate representation of your company’s upcoming finances.
Rolling budgets are organized the same way as traditional budgeting documents. A rolling budget contains information on your business’s revenue, expenses (fixed and variable costs), and profits. However, you will change your revenue and expense predictions using your current numbers.
Let’s say you predicted your business would earn revenues of $50,000 in January, but you actually only earn $35,000. You must update your rolling budget to remove January, add the following year’s January forecast, and decrease your total forecast by the appropriate amount.
Rolling budget template
You can create your rolling budget using a spreadsheet or notebook. Using a spreadsheet will allow you to easily make edits and updates.
Many business owners create a chart to organize their budgets. Separate your rolling budget by month. And, create sections for revenue, expenses, and profits. Include line items for each expense and type of income. Add or delete items when necessary.
As the year progresses, you will remove months that have passed. Then, you will add them at the end.
Should you use a rolling budget?
Although there are many positives of using a rolling budget, there are also negatives. Use the following advantages and disadvantages to help you decide if a rolling budget is right for your business.
Advantages of a rolling budget
There are many pros to using a rolling budget.
Your financial statements give you a more accurate representation of the state of your business’s finances. With a rolling budget, you can use that information to create a more realistic budget.
Budgets play a big role in decision making. A rolling budget can help you avoid spending more than you have, preventing your business from generating a negative cash flow.
Rolling budgets also account for unexpected expenses. When an unexpected expense comes up, you can allocate funds to make up for the loss. Come up with ways to decrease other expenses the following month or work to increase your business revenue. That way, you can keep your business on track to reach financial goals.
Traditional budgets quickly become inaccurate because there is no way to predict your business’s finances. But with a rolling budget, your business doesn’t have to fall behind.
A rolling budget also gives you a perpetual 12-month forecast, which can better prepare you for the upcoming year.
Disadvantages of a rolling budget
Rolling budgets aren’t for every business.
Using a rolling budget could lead to a business depending too much on reallocating funds. This could hinder your business from reaching long-term financial goals.
Creating rolling budgets is also time-consuming. Instead of sitting down once a year and forecasting your business’s revenue and expenses, you need to budget each month. Some businesses may not have the time to do this, especially during busy seasons.
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This article is updated from its original publication date of August 9, 2018.
This is not intended as legal advice; for more information, please click here.