Rolling Forecast vs. Budget - Differences EXPLAINED

welcome back to the Clara CFO group Channel if you have been watching the channel recently you have known or figured out that we are talking about budgeting it is what we like to call budgeting season over here we are in the fourth quarter of the Year this can be helpful throughout the year of course but um we wanted to give also people some timely information so for those who are subscribed to the channel they can get this kind of real time help as they start preparing their budgets for the next year today we're going to talk about the difference between a budget and a rolling for forecast because sometimes I hear the term forecast and budget sort of used interchangeably sometimes and they really although they might have be based on similar numbers they actually should be used differently so that is what this video is about so if that sounds interesting I am going to get into it in just a second but at first I would love for anybody who's not already subscribed to the channel to subscribe I would love to have you here and that you can get this information on a timely manner we try to do videos in the time of the year that it makes sense to think about some of those things so we're doing budgeting we're also going to be talking about payroll providers so if you are thinking about changing your payroll provider before the end of the year you're going to want to check out some of those videos because we're going to do some walkthroughs of some different platforms so really trying to be timely here for you as you're trying to make decisions and trying to do stuff and plan for your next coming year all right so would love to have you here as a subscriber all right so one thing that's very very very important to understand about budgets is that we do the budgeting process and then we have a budget we have a final deliverable we have a you know product of a you know document if it's digital or if it's paper somebody prints it out it is a budget it is a guide of where we're going to spend our money for the next year okay what we should be doing with a budget is we should be kind of locking it in and creating it we can call it a plan of record we can call it status we can call it like final whatever you want to call it but our budget should really be like locked in for the year because we made a budget based on what we knew at the time and then we can do our budget taxal reporting every year or every month and see like how we're doing compared to uh the budget what this is helpful for is it helps us identify you know why things are different on the financials than what we had actually planned for okay so the as the year goes on there's going to be certain expenses or certain Revenue that might get further and further and further away from the original plan and the budget and expenses the same thing like maybe you didn't budget to hire a marketing consultant and then you did and so you know they can be very expensive and then all of a sudden your marketing budget is way more than you had or your marketing actual spend is way more than the budget that you had so that can happen and so what we want to be doing ideally is creating a second document called a rolling forecast that we can tweak and change as time goes on and as we know more information so we gather a piece of information and we adjust the financial plan which was the budget so you kind of take the budget and then you lock one and you say that's the budget that's a plan that we created at the beginning of the year but then we also have another plan that is also helping us kind of tweak and not get too far off so that we kind of still know the trajectory that we're going because let's say you anticipated Revenue to be 50% growth year-over-year in your budget but then January February March happen and you're not growing at all your your Revenue if anything it's like almost declining a little bit you don't want to be looking at your financial projection of your budget and thinking that's where I'm going like you're going to have to make up a lot of Revenue if you um you know were thinking you were on that path um if that's what you think the rest of the year is going to look like so the rolling forecast is a moving living breathing document that you change every single month and that you look at and you say okay well now this decision has been made so this expense is different this client left and so now revenue is Down based on you know so it's not going to be hitting what we thought for the budget it's actually lower so all of those kind of things you can adjust in Rolling for it and then you can compare to a rolling forecast how you're doing like did you do what you thought you were going to do or you can compare to your budget but I want to show you in Excel kind of what this could practically look like we use Gira to do our rolling forecasts as well as our budgeting which I've talked to you guys about I really like the way that they have have it done you can pull in the actuals from the most recent Financial month and then you can adjust anything going forward so maybe if you have a forecast built on the number of clients that you have and the clients is lower than what you thought it was going to be then it can adjust the forecast okay so but I want to show you guys specifically in Excel what this could potentially look like so I've taken from a couple videos ago we had the budget vity or we had we I showed you guys how to create a budget so I have the budget over here and so what I want to say is like or what I want to show you is how this could be potentially modified over time let's say we lock this in and that January and February we're actually pretty much spot on to the budget like we we kind of knew what our Revenue was going to be at that point um but we are getting into March so let's say that all of these let's say everything March and December let's just highlight those gray because that's future and just kind of to keep an eye on it let's 89,000 was the profit plan for the Year oops let's just do okay so we're going to lock that in so we can just see what that was and as time as the rolling forecast changes we can see that the projection will change so right now the budget is showing that we should be making 89,000 for the year and let's just say January and February for whatever reason they were perfect they were spot- on I just don't want to have to like make up artificial numbers for the purposes of this video but let's get into okay we're in March we are looking at our retainer income and we actually just got paid for a really big project that was way more than we had anticipated coming in in the month of March it was $30,000 however with that we did not gain the client that we thought we were going to okay so we did not gain a client a new client that's on retainer services so I kept that the same as February but then I increased and I made the project Services 30,000 for the month of March however because it's so large we're not going to be able to take on any projects in April okay so I'm going to take that out all right so you can see just with those few little pieces of information our projection changed for the for the end of the year we are now at 82,000 okay so with a couple of those little changes which really that shows you what retainer work will do the retainer Services went down pretty dramatically and so with that even though we had this big project it actually put our profit down a little bit so that might be a good strategic decision to say hm would we rather have projects in this case or would we rather bring on a retainer client because it's making a big difference to the financial picture Okay so because I knew those things I changed it and because this is now become the rolling forecast when you start changing it so you keep your bud your budget static and then you use the rolling forecast to update every month let's just say a couple other things happened you actually lost an employee but it was a part-time employee so it wasn't like a huge amount of payroll so we're going to take that out I'm not going to do this across all the cells because I don't have this built in really dynamically this is why we have models for this and software where we can just put in a termination date and have the employees salary removed but you get the idea so that's going to be reducing salaries and wages and let's say that actually we hadn't hired the bookkeeping and tax people until March so maybe let's just take that out and then with that their retainer was actually 1,500 rather than 19,00 so we over budgeted for it but now we can see okay let's put in closer to what we know we actually will be paying so we can get a better idea of what that end of year profit is going to look like so with that with those tweaks and changes we actually are a little bit higher of a profit margin at 90 uh or profit at 9899 which is a little bit higher of a percentage still not where we would like to be but um that's these are this is how the rolling forecast changes so then when March is over what you do is you can make like a copy of this or you can I mean a copy is great if you're just doing this in Excel you would make like a second Tab and then you would pull in all the actuals for March and then you would make your adjustments for April and Beyond and you know this might be things like okay we've decided that we're going to start a new new project at a certain period of time like maybe August we're going to hire a a HubSpot consultant to come in and help us set up our HubSpot or we're going to invest in a new software that's going to be $20,000 or we're going to put in a lot of initiative into a new training that we didn't budget for at the beginning of the year you know all of those kind of things they happen we're running businesses we're Dynamic like we're not just going to like know exactly every little decision that we're going to make at the beginning of the year so the rolling forecast helps us keep on track and it sort of helps us say like okay like are we still on track to reach our goals or do we need to like have another initiative or do we need to go out and sell more or do we need to increase our prices you know what what do we need to do and you can keep your eye on your you know your profit goals your income goals and the rolling forecast helps you do that over time okay I'm happy to answer any questions about rolling forecasts because I know that probably a lot of not a lot of people are using them but I think they are probably one of the best tools a rolling forecast or a cash flow forecast you know really those two things can can help each other if you're updating your cash flow forecast it's probably using the same information that you would be putting into your rolling forecast but the rolling forecast is based on the profit and loss statement okay kind of like the budget it's based on the profit and LW statement so it's going to look a little different than your cash flow forecast okay I think that's it those are the differ between a budget and a rolling forecast very very simply budgets are static you don't change them throughout the year Rolling forecasts are living breathing and they should be updated at least monthly all right thanks everybody talk to you later bye

Channel: Clara CFO Group

Views: 8,776

Keywords: rolling forecast, budgeting, forecast vs. budget, create a rolling forecast, rolling forecast vs. budget, what is a rolling forecast, what is a budget, how to create a forecast, how to forecast for business, forecasting for business, forecast cash for business, difference between forecast and budget, difference between rolling forecast vs. budget, budget vs. rolling forecast, how to create a rolling forecast, business forecast, business budget vs. forecast, rolling forecasts

Id: AN-9OSduhnc

Length: 11min 51sec (711 seconds)

Published: Fri Nov 03 2023