Rolling Forecast - definition & overview

The term 'Rolling Forecast' is a crucial concept in the world of small business management, particularly in the context of financial planning and strategic decision-making. It refers to a method of financial forecasting that extends the forecast period by a specific interval or period, typically on a monthly or quarterly basis. This approach allows businesses to continually update their financial projections, ensuring they are based on the most recent data and trends.

Unlike traditional static forecasting methods, which are often based on historical data and fixed for a specific period, rolling forecasts provide a dynamic and flexible approach to financial planning. They allow businesses to adapt their strategies and plans in response to changing market conditions, customer behaviours, and business performance. This adaptability is particularly valuable for small businesses, which often operate in volatile and rapidly changing markets.

Understanding Rolling Forecasts

At its core, a rolling forecast is a financial planning tool that provides a continually updated view of a business's financial future. Instead of being fixed at the start of a financial year, the forecast period 'rolls' forward with each new period. For example, if a business uses a 12-month rolling forecast, at the end of each month, a new month is added to the forecast, ensuring it always covers the next 12 months.

This approach provides a more current and accurate view of a business's financial position and prospects. It allows businesses to respond quickly to changes in their operating environment, whether that's a new competitor entering the market, a change in customer behaviour, or a shift in the broader economic climate. By continually updating their forecasts, businesses can make more informed and timely decisions, helping them to stay competitive and profitable.

The Benefits of Rolling Forecasts

Rolling forecasts offer several key benefits for small businesses. Firstly, they provide a more accurate and up-to-date view of a business's financial position. Because they are updated regularly, they reflect the most recent data and trends, helping businesses to avoid surprises and manage risks more effectively.

Secondly, rolling forecasts support more proactive and strategic decision-making. By providing a forward-looking view of the business's financial position, they enable businesses to anticipate future challenges and opportunities, and to plan and prepare accordingly. This can be particularly valuable in a volatile and uncertain market, where the ability to adapt and respond quickly can be a key factor in business success.

The Challenges of Rolling Forecasts

While rolling forecasts offer many benefits, they also present some challenges. One of the main challenges is the need for regular data collection and analysis. This can be time-consuming and resource-intensive, particularly for small businesses with limited resources. However, with the right systems and processes in place, this challenge can be managed effectively.

Another challenge is the need for a culture of adaptability and flexibility. Rolling forecasts require businesses to be willing and able to change their plans and strategies in response to new information. This can be difficult in a business culture that is resistant to change or focused on short-term results. However, with strong leadership and clear communication, this challenge can be overcome.

Implementing Rolling Forecasts

Implementing rolling forecasts in a small business involves several key steps. The first step is to define the forecast period. This will depend on the nature of the business and its operating environment. For example, a business in a fast-paced and volatile market might choose a shorter forecast period, while a business in a more stable and predictable market might choose a longer period.

The next step is to collect and analyse the necessary data. This might include sales data, customer data, market data, and financial data. The data should be as current and accurate as possible, to ensure the forecast is based on the most recent information. This data collection and analysis process should be repeated at the end of each period, to update the forecast.

Choosing the Right Tools

Choosing the right tools is a crucial part of implementing rolling forecasts. There are many software tools available that can support this process, from simple spreadsheet programs to more sophisticated financial planning and analysis (FP&A) software. The right tool will depend on the size and complexity of the business, as well as the resources available.

When choosing a tool, it's important to consider its ease of use, its data integration capabilities, and its ability to support the rolling forecast process. It's also worth considering whether the tool offers any additional features, such as scenario planning or performance tracking, which can enhance the value of the rolling forecast.

Building a Culture of Forecasting

Implementing rolling forecasts is not just about choosing the right tools and processes; it's also about building a culture of forecasting within the business. This means creating an environment where regular forecasting is seen as a valuable and necessary part of business planning and decision-making.

Building this culture requires strong leadership and clear communication. Leaders need to communicate the value and benefits of rolling forecasts, and to encourage their use throughout the business. They also need to provide the necessary training and support, to ensure everyone understands how to use the forecasts effectively.

Rolling Forecasts and Strategic Planning

Rolling forecasts play a crucial role in strategic planning. By providing a forward-looking view of the business's financial position, they enable businesses to plan and prepare for the future more effectively. They support strategic decision-making by providing a clear and current picture of the business's financial prospects, helping businesses to identify opportunities and challenges, and to make informed decisions about their strategies and plans.

For example, a rolling forecast might reveal that a business is likely to exceed its sales targets for the next quarter. This could lead to a decision to invest in additional resources or to explore new market opportunities. Conversely, a forecast might reveal that a business is likely to fall short of its targets. This could lead to a decision to cut costs, to focus on customer retention, or to explore new revenue streams.

Aligning Forecasts with Business Goals

For rolling forecasts to be effective, they need to be aligned with the business's goals and strategies. This means that the forecasts should reflect the business's strategic priorities, and should be used to support strategic decision-making.

For example, if a business's goal is to increase market share, the forecast might focus on sales and customer acquisition data. If the goal is to improve profitability, the forecast might focus on cost and revenue data. By aligning the forecasts with the business's goals, businesses can ensure they are using their forecasts to drive strategic action and results.

Using Forecasts to Drive Action

Rolling forecasts are not just about predicting the future; they are also about driving action. By providing a clear and current picture of the business's financial prospects, they can help businesses to identify the actions they need to take to achieve their goals.

For example, a forecast might reveal that a business needs to increase sales in order to meet its revenue targets. This could lead to actions such as launching a new marketing campaign, improving customer service, or introducing a new product or service. By using their forecasts to drive action, businesses can ensure they are taking the necessary steps to achieve their financial and strategic goals.

Conclusion

In conclusion, rolling forecasts are a powerful tool for small businesses. They provide a dynamic and flexible approach to financial planning, enabling businesses to adapt their strategies and plans in response to changing market conditions and business performance. While they require regular data collection and analysis, and a culture of adaptability and flexibility, the benefits they offer in terms of improved accuracy, proactive decision-making, and strategic alignment make them a valuable investment.

By understanding and implementing rolling forecasts, small businesses can enhance their financial planning and strategic decision-making, helping them to stay competitive and profitable in a volatile and uncertain market. So, embrace the rolling forecast, and let it guide your business towards a more prosperous and successful future.