What Is Rolling Budget?

A rolling budget is a budgeting system where a new budget period is continually added as the current period is completed, allowing for a budget to extend one year into the future.

This type of budget requires more management attention and monthly budget updating activities compared to a static budget. Additionally, participative budgeting in a rolling budget can be time consuming, as it requires significant employee input. As such, it is recommended to adopt a leaner approach with fewer people involved in the process. This can help to ensure the budgeting process is efficient and effective.

Furthermore, a rolling budget helps to provide a more accurate view of a business’s financial position, allowing managers to make more informed decisions. It also offers greater flexibility to adjust to changing conditions.

Overall, a rolling budget is a useful tool for businesses looking to get a better understanding of their financial situation and plan for the future.

Types of rolling budgets

Regularly updated forecasts of revenue and expenses in various areas of the business are known as rolling budgets. These forecasts are commonly used in business and provide an insight into the financial future of a company.

Rolling budgets are divided into the following categories:

1. Sales budget: This budget predicts revenue using sales volumes and pricing.
2. Production budget: This budget estimates production volumes based on sales forecasts.
3. Overhead budget: This budget predicts expenses excluding raw materials and labor.
4. Capital budget: This budget forecasts cash flow for significant investments and projects.
5. Master budget: This budget summarizes information from other budgets to arrive at profitability forecasts.

Rolling budgets are essential tools used by businesses to plan and manage cash flow. They help to identify potential financial risks and opportunities, as well as allow businesses to make informed decisions on where to allocate their resources. Rolling budgets provide a structured approach to financial forecasting and ensure that businesses have the financial resources necessary to meet their goals.

When to use a rolling budget

The use of a rolling budget may be beneficial to businesses in dynamic markets, where frequent changes can be expected. Industries such as CBD manufacturing, hospitality, and travel would benefit from more frequent budget updates due to their ever-changing nature.

A rolling budget offers flexibility and responsiveness when adapting to new conditions, and also provides better forecasting and real-time progress tracking. Startups and businesses without steady revenue streams can also benefit from the use of a rolling budget, allowing them to better manage investment funds and keep track of unexpected income growth.

However, businesses in more mature and stable industries may not need to update their budgets as often, and regular updates may do more harm than good in some cases. It is important for businesses to assess their individual needs and consider whether a rolling budget is the right option for them.

Example of a Rolling Budget

Adopting a rolling budget system can be an effective way for businesses to adapt to changing conditions and track their progress in real-time.

In this system, the budget is extended by one month after the original planning period is complete. For example, ABC Company’s budget would begin in January and end in December. However, after the January period is over, ABC Company would add a budget for the following January and thus extend the planning horizon from February of the current year to January of the next year. This allows the business to look further ahead and plan for future expenses.

The rolling budget also allows the company to make adjustments to their budget as needed, ensuring that they are up to date with trends and changes in the market. Additionally, it allows them to monitor their progress in real-time and make corrections as needed.

The rolling budget system allows companies to remain agile and respond to changing conditions quickly. This system helps them stay on track with their goals and objectives while still allowing for flexibility and adaptability.

Advantage of Rolling Budeget

Benefiting from a budgeting system that incorporates periodic extension and adjustment can lead to significant advantages for businesses. Rolling budgeting enables organizations to:

• Adapt to changing circumstances and opportunities
• Utilize recent data and forecasts to keep the budget realistic and relevant
• Monitor and plan continuously

Rolling budgeting reduces the risk of variances and surprises, and encourages teams to achieve their goals with attainable targets. This type of budgeting also motivates employees to remain productive and take active steps to reach their objectives. It also allows for organizations to allocate resources more effectively and to identify areas of improvement in a timely manner.

In addition, rolling budgeting encourages collaboration between departments and keeps everyone in the organization on the same page. This helps to ensure that all goals are met and that no resources are wasted. Overall, it provides organizations with a flexible and efficient method of budgeting which can be invaluable in times of uncertainty.

Disadvantage of Rolling Budget

Transitioning from the advantages of rolling budget, this section will discuss its disadvantages. Rolling budget requires extra time, resources, and stakeholders, which creates confusion and uncertainty. Furthermore, this method can reduce accountability and commitment, as the budget is not final. Moreover, it limits long-term vision and strategy by focusing on short-term results, and can conflict with other budget control methods.

The following table summarizes the disadvantages of rolling budget:

Conclusion

Rolling budget can be an effective tool for businesses to manage their finances and plan for the future. It allows for a more flexible approach to budgeting, allowing businesses to consider factors such as seasonal sales and other changes in the market.

Rolling budgets can be used to create long-term or short-term plans depending on the needs of the business. While it does provide flexibility, the disadvantage is that it can be difficult to track and monitor performance over time.

It is important to weigh the advantages and disadvantages in order to decide if a rolling budget is the right choice for a given business.