Why might businesses employ a rolling budget approach?

Businesses might employ a rolling budget approach to allow for continuous financial planning and improved accuracy in forecasting.

A rolling budget, also known as a continuous budget, is a type of budget that is continuously updated by adding a new budget period, such as a month or a quarter, when the last budget period is completed. This approach is often employed by businesses to ensure that they always have a 12-month budget at hand, which can be particularly useful for businesses operating in fast-paced or unpredictable industries.

One of the main reasons businesses might employ a rolling budget approach is to allow for continuous financial planning. Traditional static budgets are often based on assumptions made at the beginning of the year, which may not remain accurate as the year progresses. With a rolling budget, businesses can update their forecasts and plans regularly, ensuring that they are always based on the most recent data. This can help businesses to react more quickly to changes in their operating environment, and to make more informed decisions about future investments and expenditures.

Another key advantage of the rolling budget approach is that it can improve the accuracy of forecasting. By regularly updating their budgets, businesses can incorporate the latest actual results into their forecasts, which can help to reduce the margin of error. This can be particularly beneficial for businesses operating in volatile markets, where accurate forecasting can be a key factor in maintaining profitability.

Furthermore, a rolling budget can also help to promote a culture of continuous improvement within a business. By regularly reviewing and updating their budgets, businesses can encourage their managers to constantly look for ways to improve performance and reduce costs. This can help to drive efficiency and productivity, and ultimately improve the bottom line.

However, it's worth noting that rolling budgets can also be more time-consuming and resource-intensive to maintain than static budgets. They require regular review and updating, which can place additional demands on a business's financial team. Therefore, businesses need to weigh up the potential benefits of a rolling budget against the additional resources required to implement and maintain it.