How to Build a Better Business Budget

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The rolling budget model allows you to actively respond to changes, assess strengths and weaknesses, and revise spending strategies.

Finding the right approach to budgeting is not always straightforward. There are several techniques that small to large businesses can integrate to plan for upcoming expenses and changes in revenue. Effective budgets not only provide essential visibility into cash flow and expenditures, but also show what continued growth, stability, and success will look like.

Traditionally, budgets are created in advance of a long-term period, such as a year, and they remain relatively unchanged until that same date rolls around again. While this does work for some businesses, there is a more flexible approach.

What is a rolling budget?

A rolling budget is updated regularly, as opposed to a static or traditional budget that’s set up in advance of the year ahead and not significantly altered for that period. The rolling budget model is continually updated for the next short-term period so that it is managed based on actual data and any business changes.

For example, a budget may be created for the next 12 months. But after each month or quarter completes, the budget is revised based on that period’s performance and new projections. The new budget still includes the next 12 months, but it has changed to make it more accurate and actionable.  The rolling budget allows for flexibility and month-by-month revisions based on a shifting market or updated priorities.

The benefits of a rolling budget

The biggest plus is that a regularly updated budget can help a company spend more wisely based on what’s actually happening, rather than adhering to a static projection during changing conditions. Strengths and weaknesses are more apparent, and that information can be used to improve approaches to expenditures.

Another benefit is added visibility. When spending and sales are analyzed regularly, whether monthly or quarterly, the business gains a much better sense of how their practices are working—or not. Trends are better assessed, and a more accurate budget can be put in place to reflect real insights. For example, if one season of the year has much different sales numbers than the others, this knowledge helps inform future years’ budgets and business practices.

A rolling budget also allows the entity to adapt to market changes or new technologies that must be implemented to improve efficiency or contribute to growth.

It’s important to note that this model does take extra time for team members. It’s more involved than a static budget, so some businesses aren’t willing to invest additional time and energy. However, it gives managers much more control over planning, which impacts both the short- and long-term success of budgeting and cash flow management.

Getting back to budgeting basics

While a rolling budget is a departure from the more traditional, static budget, there are still some basic practices that should be implemented for any plan.

1. Round up expenses

Planning for expenses isn’t a time to be modest. Unforeseen business costs are common, and the fees from vendors and other partners are always increasing. When projecting expenses, overestimate the costs so that you’re prepared. It’s better to overbudget than underbudget.

2. Include employee time

Estimating costs should involve assessing the time employees or contractors will spend on specific tasks, projects, or clients. Don’t forget to include these projections in the budget.

3. Involve other departments

Don’t approach the budget on your own. Depending on your business’s size, you’ll need to involve all departments in collecting data, such as marketing metrics that impact sales. Creating the budget should be a group effort so that everything is represented accurately, and everyone is on the same page about their portion of it and approved expenditures.

4. Research competitors and the industry

Research what your competitors’ spending looks like and any changes your industry sees, especially if you’re just starting out. This data can impact your spending and revenue, and keep you on top of what’s ultimately happening for consumers.

5. Cut back where you can

Ensure that each time you evaluate and update your budget, you’re looking for ways to cut back on expenses. A rolling budget allows you to respond to any months of poor performance by assessing what’s necessary and what isn’t.

6. Work with a professional

Hire a financial expert who can help you take a look at your cash flow and create a budget that is not only realistic, but that also ensures you’re on the path to growth.

Get in touch with the team at Provident CPA & Business Advisors today to meet with our experienced team. We provide entrepreneurs and small businesses with profit management services that promote growth, stability, and continued financial success.

Why Take a Proactive Approach to Management?

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Many managers are too reactionary, only noticing an issue when it’s big enough to cause problems. But the right business metrics inform proactive decision-making.

There are many approaches to managing a business. But when you need a solution that will help you motivate your team, manage risks, and make better decisions, a proactive approach is a must.

Learn why being more hands-on and acting preemptively will not only inspire your team but also mitigate risks and give you greater visibility into your business. This is done by measuring key processes that help you understand what’s really going on.

Proactive versus reactive management styles

Reactive managers act when something concrete happens, triggering movement. They wait for an event to occur before finding a solution, instead of risking a wrong decision. They may see this approach as mitigating risk because they’re not making a change unless they know something is wrong.

Proactive managers, on the other hand, don’t wait. They act from the beginning to inform outcomes. In this way, a proactive approach allows you to have more control over both risks and results. You’re more prepared for what’s coming, instead of waiting to see what happens. And being proactive means that problems can be prevented, instead of merely managing their consequences.

More benefits of proactive management

The main advantages of proactive management revolve around risk. It’s an effective strategy to both reduce risk and better manage issues.

Key benefits include:

  • Assess and manage risks. Unlike a reactionary approach, proactive leadership means you’re thinking about risks before they happen, and preparing for them.
  • Minimize damage from these risks. Reactive managers may see a risk but won’t act unless an adverse incident occurs. Managing proactively means taking steps to address things before damage can happen.
  • Greater understanding of your business. By gauging risks and measuring business processes, managers have a better picture of what’s happening behind the scenes, helping them know which areas need work, and which are working well.

Proactive managers also inspire their teams to act instead of waiting. This effect is a major benefit—motivating and enabling employees by setting a solid example. Empower the entire team with a more hands-on attitude toward business challenges and risks.

Using metrics to be more proactive

So, how do you successfully implement your proactive management plan? It’s all about metrics. You’ll never know how to plan for the future and predict challenges without knowing concrete numbers about your business.

Financial metrics are likely the most important, informative things to track. They give you a full picture of ROI, sales, your business’s ability to meet goals, and potential growth.

However, they aren’t the only numbers you need to be measuring. Operational and marketing metrics are just as important to gauge the success of your organization and help you make the right decisions. Common operational metrics include numbers like staff response times and the time it takes to create or ship a product. These measurements give you an understanding of staff and process efficiency.

Marketing metrics will give you a better picture of where to spend promotional dollars. You’ll find out which outlets are the most successful and cost-effective in getting new clients and leads.

The main goal of tracking these items is to help you understand your business. Only then can you make better decisions, assess and manage risk, encourage employees to take a proactive approach, and effectively plan for the future.

Proactive management with Provident

At Provident CPA & Business Advisors, we believe that what is measured is better managed. Visibility is crucial to successful business growth and sustainability, and we give you the tools to collect these metrics.

Our Proactive Management Systems approach is made up of two key components:

  • Accounting. We start by overseeing your accounting process, making sure you’re gathering all the information you need, and doing it efficiently.
  • Greater visibility. We then help you understand what those accounting numbers mean in your business’s big picture. You’ll view your financial metrics in a simple, automated dashboard, so you know what’s going on and can plan ahead.

Provident is committed to helping you improve and streamline your business. Contact our team of professionals today to learn more about our Proactive Management Systems and growth and profit improvement services.