Rolling Forecast

Most businesses understand the importance of planning for the future. Predicting the future is difficult, especially during recent political and economic instability. Once a year, business leaders devote significant time in an effort to develop a financial plan for the upcoming year. Often, that plan is outdated within the first few months of execution

A financial forecast is a road map that if followed, will lead to accomplishment of established goals. Like a road, our economic environment is full of curves, bumps, hazards and detours. If you don’t keep your eye on the road and periodically adjust the car’s course, you wind up in the ditch. Successful businesses periodically evaluate and adjust their future plan for unanticipated events.

A rolling forecast is the mechanism used to make periodic course corrections. A rolling forecast should have at least twelve monthly periods. At the close of each month, the current month’s forecast is replaced with actual results. The actual month’s results are compared to the prediction and variances are analyzed. The variance analysis is critical to understand where the plan succeeded and where it failed. Each month we learn valuable lessons that provide the insight to adjust our future plans and our forecast to include more of the successes while eliminating the failures.

I often see business owners that focus solely on their profit and loss statement without regard to other sources and uses of cash. Many businesses fail because they do not adequately manage working capital such as accounts receivable, inventory and accounts payable. A comprehensive forecast should include a balance sheet and statement of changes in cash. The owner will be in a better position to predict the likely future cash needs of their business.

If you are a business owner and need help developing a robust financial plan, give me a call. A B2B CFO® can make it affordable by helping on an as needed basis.


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