Rolling forecasts can help provide great insight into your business’s operations, but they can often be made better with the right tips. We’re going to share a few guidelines for creating a reliable rolling forecast.
However, before we begin, let’s review what a rolling forecast actually involves.
Rolling Forecasts: What Are They?
Rolling forecasts are reports that utilize historical data to help business owners predict future finances. The “rolling” aspect allows for the forecast to continually change during the forecast period and can be used for:
- Financial reports
- Supply chain
- Budgeting
- Etc.
Why are rolling forecasts valuable?
Consumer habits are always changing, and a rolling forecast empowers businesses to adapt to trends in precise ways. High-growth businesses that undergo rapid, drastic changes can best use rolling forecasts to their advantage.
Changing variables and data allows for an accurate forecast that changes over time.
Rolling Forecast Adoption Requirements
One of the main pros and cons of rolling forecasts is that there’s an adoption phase that takes some patience to get through. Forecasts of this magnitude are a major undertaking that requires you to do the following:
- Create a culture: All stakeholders and accounting team members must buy into the rolling forecast for it to work. You need to sit down with leaders of the marketing, sales, production and manufacturing teams to ensure everyone is on the same page and willing to provide the data needed for the forecasts.
- Data accuracy: When everyone is on board, it’s easier to create accurate forecasts because it is necessary that the data input into the models is accurate. Variance analysis will also need to be used to identify issues and variances in data to keep the forecast as accurate as possible.
- Modeling requirements: Elements of the business’s operational and financial performances will be monitored and utilized for the forecast. Everyone needs to understand the scenarios and forecasts that will be made.
- Put systems in place: Putting the right systems in place is crucial to the overall success of the forecast. You’ll need to create systems for baseline forecasts and how they’ll be updated throughout the rolling forecast.
If multiple team members are needed to run and update forecasts, it’s important to have your team in place and trained. Rolling forecasts are a major undertaking that will require a lot of manpower to be a success.
Guidelines for Creating Successful Rolling Forecasts
There are a lot of benefits of rolling forecasts, and you can use a cash flow forecasting tool from CashFlowFrog to help. However, before you begin using rolling forecasts as an alternative to budgets, it’s important to follow these tips:
- Set a duration: What will the duration of the forecast be? Shorter forecasts are easier to manage and more accurate, but it’s not uncommon for forecasts to be 12-18 months long. Your forecast period should depend on the goals of the report.
- Create goals: What are the goals of the forecast? Do you want to know if you’ll reach a certain level of liquidity to be able to open a new office or how a new product will perform? You should create your goals and use this as an underlying foundation for the rolling forecasts you make.
- Go beyond Excel: Excel is a great tool, but there’s simply too much effort and input that must be performed for any high level of accuracy to occur. You’ll find many tools that can help make running forecasts easier.
- Comparison periods must be chosen: Annual comparisons should be created for the forecast. You need to know what the financials are this year compared to the same period a year prior.
- Outline expense and revenue drivers: Forecasts are driver-based, which means that they’re primarily driven by certain forms of revenue and expenses. Know what your business’s drivers are to make managing rolling forecasts easier.
Once you implement these five tips, you’ll find that making rolling forecasts is much easier.
Final Touch
Relying on the data your business has available to plan for the future allows you to make smarter business decisions. A rolling forecast provides a glimpse into the future of the business and will change as more data for the forecast period becomes available.
