What Is a Rolling Forecast?

By: William Delong - Guest Contributor on December 29, 2022

As a small-business owner, you want to make sure your business model can survive any tumultuous periods and come out stronger after things settle down—regardless of whether it’s a period of rapid growth or unforeseen turbulence. You and your team have many choices to help you find the way forward, including analytics software that gathers data points from across your company to derive insights for budgeting and forecasting.

For your business, the right forecast model needs to meet two key criteria:

Overall accuracy
Ability to be efficiently revised as things change throughout the year

Enter a rolling forecast. When deployed properly, a rolling forecast can help your team navigate quick changes by predicting future results after aggregating and analyzing financial data.

But you need to handle rolling forecasts properly, and Gartner warns of five rolling forecast mistakes to avoid [1] in order to mitigate common pitfalls. Building on Gartner's research, discover everything you need to know about a rolling forecast model.

What is a rolling forecast?

A rolling forecast uses historical and current financial data, including but not limited to budgets, expenses, accounts receivable, procurement, and cash flow. This allows small business owners to adjust budgets throughout the year rather than rely on a strict, static budget.

For example, you set aside $100,000 for a hiring budget in the next calendar year. But then you get a huge order in March which requires hiring more people to take on the extra work. A rolling forecast model can help you predict when you need to hire more people, how long you'll need more staff, and how that extra revenue can lead to steady growth.

What are the benefits of a rolling forecast?

Rolling forecast models have three major benefits for SMBs:

More accurate financial planning

Companies with a rolling forecast typically have more accurate financial planning in the months ahead. This will give small-business owners a jumpstart on next year's budget. Amazingly, many small businesses with a comprehensive and extremely effective rolling forecast might be able to eliminate the need for annual budgets entirely.

Responsive to business or industry changes

Because rolling forecasts are done weekly, monthly, quarterly, or even continuously, your business can be proactive and responsive to business or industry changes rather than being reactionary after the fact

Upgrade from financial forecasts to business forecasts

There is a difference between financial forecasting and business forecasting. The former just examines financial numbers for future predictions based on historical data of revenue, cash flow, sales, and expenses. The latter relies on data from every data point but also showcases past events, seasonal ebbs and flows (if any), and insights from leadership.

One mistake companies make is failing to recognize that rolling forecasts take into account more than just financial data and processes. Rolling forecasts affect everyone in the company, from HR managers who may need to hire extra team members to maintenance techs on production lines who could need to upgrade equipment to handle the extra workload.

What kind of business should consider a rolling forecast?

Rolling forecasts are great tools, but they aren't appropriate for every kind of business. These types of businesses benefit the most:

SMBs in volatile industries

Businesses in volatile industries—including finance, healthcare, technology, and commodities—benefit from rolling forecasts the most because they must respond quickly and efficiently to changes in order to survive.

SMBs experiencing a period of intense growth or change

Companies that experience rapid growth or change are ideal for rolling forecasts because this model can help leadership keep up with the faster pace of business.

However, one mistake that business owners make is not understanding how the forecast data will be used. For example, your company might decide rolling forecasts are great for riding out times of uncertainty. But rolling forecasts are holistic, meaning companies can implement them after the crisis period ends in order to drive the company forward using more meaningful data.

SMBs with established financial planning processes seeking further future visibility

You already have an annual budget, and you foresee rolling forecasts being able to assist your teams in measuring targets attached to your traditional yearly budget forecasts. But that's one mistake because you're limiting what this data analysis can do. A rolling forecast is so much more because of the frequency you analyze the data.

A monthly rolling forecast can look one quarter ahead, while a quarterly rolling forecast could see anywhere from 12 to 18 months ahead. Annual rolling forecasts can increase visibility three to four years into the future, giving your company an advantage to take action now for the best results months and years ahead. The caveat: the farther you look ahead, the less accurate the forecasts become.

Prepare your business for a rolling forecast

There are a few crucial steps to take if you want to ensure your business is ready to consider a rolling forecast.

Centralize financial reporting dashboards. This does several things for your company. It gives you one central place to look at metrics and analytics. Also, you can provide access to anyone in your company who may need it beyond the financial personnel. Managers, shift leaders, project managers, and procurement specialists can all benefit immediately from viewing the same data, found in a central database. When you’re ready to implement a rolling forecast, you won’t need to string together data from all over to create a comprehensive picture.
Identify industry trends and map potential impacts. One key here is to keep weekly or monthly reports less granular because stakeholders will make too much of an effort to produce results for possible future outcomes. One mistake companies make in rolling forecasts is to have too much detail. Rather than focus on more information in weekly or monthly reports, look at a few key performance indicators that drive your business forward and take action from there.
Consider the value and importance of existing forecasting processes. When moving to a rolling forecast, legacy forecast models typically become obsolete. Maintaining both your legacy forecasting and rolling forecasting causes confusion and extra effort.

Key tools to consider for rolling forecasts

The right software can help your rolling forecasts be as accurate as possible. Options include simple platforms that look at future demand and procurement platforms that provide assistance in managing vendors to entire suites of ERP analytics tools that mine data from every possible point in your company. Software Advice offers ways to narrow down the right choice for your business.

If you need more information as your company plans for rolling forecasts, take a look at these articles from Software Advice:

Sources

5 Rolling Forecast Mistakes to Avoid, Gartner.