How to Build a Better Business Budget
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.