Deciding the best way to do your budget for the year is a process that will affect how much financial information you have at your fingertips. Many companies are beginning to set up rolling budgets to give them a better forecast of the year ahead. Here is the how and why to set up a rolling budget for your small business.
What Is a Rolling Budget, Anyway?
A rolling budget is a budget that is calculated to always include the upcoming year. For instance, you might start the year with a budget that includes January through December of the current year. Once January passes, you would then redo the budget to go from February of the current year through January of the following year, and so on. The rolling budget always includes an up to date picture of what the next twelve months look like.
Benefits of Rolling Budgets for Small Business
Rolling budgets allow you to make your decisions for the next year based on more comprehensive information. It is more detailed than a regular budget. For example, if you are doing better or worse than expected for the current year, it gives you 12 opportunities to update your budget rather than just one per year. When you're operating a small business, your sales and costs can fluctuate greatly; rolling budgets give you the opportunity to go with the flow and reassess your financial standings more often.
Drawbacks of Rolling Budgets
Of course, there can be some drawbacks to using a rolling budget. If you're used to looking at a regular budget, it can be confusing at first. It requires you to continually plan out one year from now, when you may be more used to focusing on the fiscal year at hand. This can demand more resources from you and your financial staff, so it's a decision to consider before plunging in.
How to Set Up a Rolling Budget
You can make the process of setting up your rolling budgets easier by hiring a small business accounting firm to handle the process; they may be able to operate your rolling budgets on a semi-automatic process by looking at your financial statements each month and forecasting how the business will be doing in the year to come. Rolling budgets do require a bit more calculation than a standard budget, so it's important to have a qualified accountant handle the task.