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Rolling cash flow forecast best practices

October 21, 2022

Rolling cash flow forecast best practices

Ariel Gottfeld

Ariel Gottfeld

A rolling forecast can help a business better understand its future performance, adapt to changes in the market and prepare for the future. But what is this type of forecast? How do you build one, and why is it important?

What Is a Rolling Forecast?

Rolling forecasts definition: A report that uses historical data to estimate the future financial state of a business on an ongoing basis.

A rolling forecast is a financial model that uses historical data to predict a business’s performance over a continuous period. They’re commonly used in budgeting, financial reporting and supply chain management. They differ from static forecasts and budgets for specific time periods because they are updated regularly and include rolling revenue.

Why Are Rolling Forecasts So Important?

A rolling forecast allows businesses and key decision-makers to make data-driven decisions. Most businesses follow patterns, so using historical data to predict future performance gives businesses a clearer picture of the company’s future financial health.

Forecasting helps businesses understand how much cash they will need in the future and when they may need it. Alternatively, a rolling forecast can help a business identify a potential surplus or a good time to reinvest in the business.

How Rolling Cash Flow Forecasts Improve Performance?

There are many benefits of rolling forecast, but one of the most important is its ability to improve performance. Here’s how a rolling forecast can help improve a business’s performance.

More Accurate Financial Planning

Having a rolling forecast can greatly improve the accuracy of financial planning. In fact, research has found that rolling forecasts improved the accuracy of budgeted and forecasted revenue by 14% compared to static budgeting and forecasting.

Improved Adaptability

Businesses with rolling forecasts are often better able to adapt to market changes quickly. Why? Because rolling forecasts allow businesses to see what’s happening in the market and their own performance in real-time.

Prepare for the Future

A rolling budget forecast allows businesses to better prepare for the future by helping them plan for cash shortages that would otherwise shut them down. Because a rolling forecast is ongoing and consistently updated, businesses get a more accurate picture of their future cash requirements.

Best Practices to Building Your Rolling Forecast

Building a rolling forecast is not unlike building any other forecast. The primary difference is that it must be updated regularly to ensure it remains accurate.

Use these rolling forecast best practices to build an accurate forecast for your business.

Set The Goals and Targets

The first step to building your forecast is to determine your goals and target. What do you aim to do with your forecast? Are you:

  • Planning for growth?
  • Hoping to reduce liquidity risk?
  • Reducing debt?

Knowing your goals and targets will help you build an accurate forecast.

Choose Your Comparison Periods

The next step is to choose the comparison periods for your rolling forecast. The periods commonly used for this type of forecast include:

  • Short-term: These forecasts typically only look a month into the future. If you want to use your forecast for liquidity planning over the short-term, this is the ideal comparison period.
  • Medium-term: These forecasts look 2-6 months into the future. They’re ideal for those who are looking to reduce debt and interest or manage liquidity risk. A 13-week forecast is the most commonly used here.
  • Mixed: These forecasts use a mix of short-term and medium-term periods. They’re commonly used for managing liquidity risk.

Definition Of Key Indicators

Another important aspect of creating a rolling forecast is defining your key indicators. Businesses have a wealth of data, but forecasts should focus on the most important and relevant metrics.

Relevant data is subjective. What's important to your business may not be important for another.

Automatically Measure Plan and Actual Forecasts

When building your forecast, you’ll want to ensure that you have a way to automatically measure your planned and actual forecasts.

Being able to compare your planned and actual results will help you make adjustments to your forecasts to improve accuracy over time.

Select A Reporting Period

Next, you’ll want to select a reporting period for your forecast and how often you’ll need to update it.

  • Daily reporting periods are ideal for short-term rolling forecasts that look just a few weeks into the future.
  • Weekly reporting periods are ideal for medium-term rolling forecasts that look six months ahead.
  • Monthly reporting periods may be best for forecasts that go beyond three months into the future.

Don't Rely Solely on Excel, Choose the Best Tools

When creating a rolling forecast, it’s important to use the best tools. Excel is a great tool, but don’t rely solely on this one tool for your forecasting.

The best tools will help you create more accurate forecasts and save you time. These are tools that:

  • Automate forecasting
  • Sync with your accounting software to get the most up-to-date data
  • Can import data from Excel
  • Tools that automate forecasts will reduce the risk of error. When adding data manually, there’s a much higher risk of human error.

Automation With Cash Flow Frog Software Can Save You Over 90% Of Your Work

Cash Flow Frog makes it quick and easy to create an accurate rolling forecast using your historical data. Simply connect to your accounting software to start building your forecast in seconds.

Cash Flow Frog also offers other tools – like scenario planning, customer insights, planned vs. actual reports, projections and more – to help improve your cash flow planning and forecasting.

Creating an account takes minutes, and businesses can start for free.

By automating the forecasting process, Cash Flow Frog saves you up to 90% of your work and greatly improves the accuracy of your forecasts.

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