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Dec 15B2B CFO

Is A Rolling Forecast Right For You?

Dec 15B2B CFO

In my last blog I talked about the concept of doing away with the annual budget process in favor of adopting a rolling forecast.  This is a strategy some larger companies have started using in order to have a financial plan that is more dynamic than a stagnant budget that can quickly be out of date as internal and external conditions change.  These larger companies that use the rolling forecast typically use sophisticated software packages in creating and maintaining their forecasts.

Though I appreciate the sentiment of a rolling forecast that is more current than a once a year budget, my personal preference is a blend of creating the annual budget as well as a more abbreviated monthly/ quarterly forecast.  Going through the annual budget process gives the business owner a chance think deeply about the year ahead and the direction he or she wants to take the company.  If this exercise is skipped, business owners who plan greater than normal growth for instance, may find themselves scrambling to find additional capital, personnel, or real estate in order to achieve the growth.

Typically, after the budget is complete, I copy a high level summary and use this data as the basis for the ongoing forecast that will be maintained and adjusted as actual financial data is available.  Actual results are substituted for the budget/ forecast data and the combination of the actual data and future month’s forecast result in the full year forecast.

Accomplishing the rolling twelve month forecast is then just a matter of linking the remaining forecasted periods to a second spreadsheet and adding on the number of months of the next fiscal year that are necessary to make a twelve month period.  Another important step of either maintaining the fiscal year forecast or rolling forecast, is to include a balance sheet and cash flow forecast.  With these three statements (P&L, balance sheet, and cash flow) linking back and forth, the business owner can get a good idea of the financial future and resources (cash and other resources) necessary to accomplish the prediction.

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