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Why every SaaS company needs to adopt a rolling budget (rolling forecast)

Most SaaS companies still use static budgets with high opportunity costs. Adopting a rolling budget eliminates those costs and isn't as hard as you think.
Kirk Kappelhoff
September 2, 2023
5 min
Table of contents
What is a rolling budget and how does it work?
Start by building a strategic budget
Next, turn your strategic budget into a rolling budget
Leveraging your rolling budget for data-driven decision making
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When the former Prime Minister of the United Kingdom, Winston Churchill, was asked about his constantly changing political affiliations, he wryly quipped, “To improve is to change; to be perfect is to change often.”

If you ignore the circumstances under which the comment was made, it’s pretty solid advice, especially given all the uncertainty in the current economy, the overall slowdown in funding, rapid changing technologies. And of course, there are those ever-growing customer expectations. Today, SaaS businesses need to be more agile than ever, able to pivot quickly based on data-driven decisions.

A rolling budget, also known as a rolling forecast or continuous budget, can help them do that, especially when combined with strategic budgeting methods.

What is a rolling budget and how does it work?

A rolling budget, simply put, is a budget that is updated at some predefined frequency (monthly, quarterly, or biannually) based on the most recent actual performance data for the previous period.

For example, with a 12-month rolling budget, updated monthly, at the end of each month the budget forecast is updated based on the previous month's performance. So, updates are a continuous process that ensures you are always operating with the most current information available.

Diagram illustrating how a 12-month forecast is updated each month based on the previous month's performance.
Example of a 12-month forecast, updated monthly based on actual performance.  

A rolling budget is also known as a continuous budget and differs from the more traditional budget in the flexibility it provides. A fixed annual budget isn't very amenable to changes throughout the period because a change in one area can create ripple effects in others.

Table comparing a rolling budget vs a static budget. Rolling budgets can cover any time period and are updated more frequently than once a year while static budgets are usually developed and updated annually with minimal changes throughout the year. Rolling budgets can be updated at whatever as frequently as the required performance and other data becomes available, while static budgets are not amenable to changes because a change in one area can have ripple effects in others. Rolling budgets can be time consuming to implement, especially if using spreadsheets,  due to the frequency of updates. Static budgets are easier to implement by comparison. Rolling budgets have flexibility built in whereas static budgets offer minimal flexibility.
Comparison of a rolling budget vs a static budget.

When you use a rolling budget model, you can adjust your budget allocations as needed in real time to capitalize on favorable trends in the market or more effectively manage cash flow issues, account for unexpected expenses, or avoid an emerging crisis.  

Still, many SaaS companies are reluctant to try a rolling budget because it can be  time-consuming, and it can be hard to get the data needed quickly enough to update it as often as necessary. In reality, though, implementing a rolling budget isn’t all that difficult with the right processes and technology.

Start by building a strategic budget

A strategic budget is a budget that is aligned with the long-term strategic goals of the company, which often span 3-5 years. In order to achieve these goals, companies need to be able to react quickly to changing market conditions and refine their short-term strategies when needed. When strategies change, budgets need to change, too, which requires a flexible budget.

This is why you need a rolling budget, one you can leverage for flexibility and long-term planning.

You can actually turn any type of budget into a rolling budget. Implementing a rolling budget really just comes down to updating it more often than you do with a 12-month budget. While this can be very difficult to do in spreadsheet, a purpose-built financial planning and analysis (FP&A) tool – one that aggregates all your data for you making it easily accessible in real time – can eliminate that problem altogether.  

Diagram showing the four types of strategic budgeting methods, activity based budgeting, zero based budgeting, value proposition based budgeting and driver based budgeting.
There are four strategic budgeting methods.

A rolling budget is particularly powerful when combined with one of the following four strategic budgeting methods:

  • Driver based budgeting: This method of budgeting is highly focused on growth. It involves identifying key business drivers and prioritizing allocations based on those that can fuel faster growth.
  • Zero based budgeting: This method examines all the expenses in the business to identify and eliminate inefficiencies and free up resources to allocate to initiatives that add value to the business. Each new budget period, it starts with a “zero” base wherein no assumptions from the previous cycle are carried forward.
  • Activity based budgeting: This method analyzes all the activities in the business to better predict costs and reduce them where possible to improve efficiency, profitability, and, like zero based budgeting, make more resources available for high-value initiatives.    
  • Value proposition based budgeting: Also known as priority based budgeting, this method of budgeting allocates resources based on what the company thinks provides the highest value to its end-users.

Next, turn your strategic budget into a rolling budget  

1. Establish a timeline for your rolling budget

It is important to determine the time frame for budget review meetings. A monthly meeting would be ideal, but quarterly or bi-annually may suffice.

This decision depends on your growth goals and the market you operate in. Also, it’s important to ensure that you allow enough time for these meetings because they may involve deep discussions regarding different scenarios (if you’re doing scenario planning to inform your budgeting process), and the resources needed for each.

2. Track your rolling budget so you can update and pivot if needed

The only disadvantage of a rolling budget is that implementing rolling budgets using spreadsheets is difficult, and most SaaS companies still rely on spreadsheets for their budgeting.

The crux of the issue is that defining a shorter budget period makes getting the performance data you need at the end of each budget period feel like a never-ending job. And once you get the data, you also have to update the budget and then compare those results to your forecast.

When you're using spreadsheets, implementing a rolling budget involves a lot more manual work, which makes using one cumbersome and time consuming, not to mention highly error-prone. This, of course, explains why so many SaaS companies remain reluctant to adopt a rolling budget despite the clear advantages it offers, continuing to develop an incremental budget instead,

The thing is, it doesn't have to be that way.

All things being equal, if it doesn’t cost me an extra dollar or a second of time to do a rolling budget, of course, I’m going to opt for a rolling budget. There’s no CFO out there that would say no to that option.

A modern and robust FP&A tool built for strategic finance can provide the foundation you need to create and successfully implement a rolling 12-month budget. With a tool that brings all your data into one platform in real time, you can continuously monitor actual vs. projected performance. This makes it easy to regularly review your budget so you can identify and make any adjustments needed.

In some cases, conditions may warrant an immediate pivot in your strategy. One of the biggest advantages of a rolling budget may be that it acts as an early warning system, allowing you to respond to emerging issues before they significantly impact your business.

On the flip side, a rolling budget also allows you to quickly reallocate resources to take advantage of new opportunities that arise to accelerate growth.

Leveraging your rolling budget for data-driven decision making

In an industry as dynamic as ours, SaaS companies need to have rolling budgets so they can quickly respond to changing conditions in the market, good or bad.

Most SaaS companies today are still using static budgets because they’re easier to build and implement with spreadsheets. But those spreadsheets come with a hefty opportunity cost.

Static budgets leave very little wiggle room for companies to adjust on the fly and prevent them from making the kind of data-driven decisions that could accelerate their growth. And, they’re going to get left behind.

At Drivetrain, we’ve eliminated the biggest roadblock to implementing a rolling budget – we make the data you need to review your budget on a monthly basis available in real time. With Drivetrain, you can significantly shorten your budget cycles and with the monitoring built in, you can compare your actuals to projected performance at any time to inform rapid decision-making.

Contact us today for a demo to see how easy it can be to adopt a rolling budget in your business!

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