Let your budgets rolling

Today I am going to solve a puzzle with this article which founders and CFOs across industries are facing and they are almost clueless on a practical solution. I have interacted with 20+founders and CFOs during this lockdown period and the essence of all those discussions centered around "Planning in an unprecedented crisis like Covid19" and how to face investors on day to day basis. At the beginning of this unfortunate downturn all CFOs were flooding with the multiple data requests from promoters, investors, managers and so many other stakeholders.

During my discussions, many of my CFO friends mentioned that the founders of their company were not aware of the monthly gross and net burn, run rate, or as simple as bank balance. Many promoters even forgot the last time when budgets were made and the current status. Ironically all the data was available to promoters in the form of frequent reports over emails and dashboards but there was a lack of interest to check all that information.

And suddenly out of the blue, alarm bells started ringing all over - reduction in sales & customer meetings, low app downloads, lack of user engagement, etc, etc and quickly thereafter announced was the nationwide lock-down. No entrepreneur would forget that day, it made them wear a CFO hat quickly and pull over their selves to look at their budgets, expense sheets, and all those dashboards for which they rarely bothered earlier. After all this is something unprecedented and everyone caught unconsciously.

The next question promoter asks the top finance guy is:

I can't run with the same budgets because my revenues are dried up completely. So what should we do?.

So both top guys(promoter and CFO) starting phasing out new realities and new cost structure, they spent sleepless nights to revise their earlier assumptions, plenty of fresh assumptions and come up with new short terms(3-6 months), medium terms(6-24 months) and long term budgets(more than 24 months). To the despair of both they saw their runway clock shifted left sharply and they could very well see a situation where the business would run out of money much sooner than they have ever imagined.

Was it a simple problem? Lets me explain why it is not.

1. All previous business struggles around the product, sales, human resources, marketing started to take a back seat, and the new and much bigger problem i.e survival started haunting.
2. The earlier devised business opportunities now looked differently and seem no relevance thus throwing the growth path out of the window.

In short, the priorities started looking very different.

And what happened after 30 days in lockdown - The short term, medium term, long terms budgets made at the beginning of lockdown started sounding absurd and impractical and non aligned to the present situation.

The pain both top guns took to formulate a short term, medium-term and long term budget just a month ago has gone waste simply because the realities changed so drastically in just over a month that all it seems is that, there is not a way out to plan in such uncertain times and it is impossible to think what is going to happen.

It is for this reason that I always advocated a rolling budget irrespective of the arguments that it is very time-consuming.

Before I explain the innumerable advantage of keeping your budget rolling let me explain what rolling budget is.

What is a rolling budget:

Think of continuous (rolling) budgets as waves rolling ashore on the beach. A new wave comes in each time, replacing the one that was there before. From a financial perspective, the wave is your budget, and the time between waves is longer! These reporting time frames can be monthly, quarterly, yearly, or even weekly.

Process: Let's assume a monthly rolling budget created for the upcoming year.

1. In January, create a budget for each month of the year (January - December)
2. On 1/31, analyze performance, noting variances between estimates and actual revenue/expense
3. Revise the rest of the months
4. Add on another month (February), so that you have a full one-year plan again.
5. Repeat this at the end of each month.

In concept rolling budget is quite unstable, I hope you must have understood it from the above explanation but practically it is a very extensive exercise that requires extreme caution, expertise & practical experience. On one hand, it requires discipline like no other budgeting technique and any lethargy could break the momentum thus make the entire exercise much less effective and on the other hand dynamic nature of rolling budget if not managed properly could lead to loss of money, time and energy without reaping its numerable advantages.

Let me now set out for your benefit the advantages of this budgeting technique.

1. Entrepreneur keeps their CFOs tight and vice versa: The most important trait to be successful in any sphere is consistency. Rolling budget have Consistency by design and that is why investors and other stakeholder loves this budgeting technique. It ensures that entrepreneurs and CFOs never lose business & operational command respectively. This also helps foster a performance-driven culture in the organization as the performance of each business unit or department is monitored on a continuous basis. This can actually work as a yardstick for rewarding high-performance people in the company. Isn't it wonderful?
2. Origination of super-effective communication across the organization: Right information at the right time to the right person is just a dream of CFOs and Entrepreneurs with no real success. Whether its a startup having a handful of people or a conglomerate with thousands of employees, typically all the organizations suffer so much from the information and communication gaps that it could prove monumental for such companies and its success if those gaps are somehow removed inherently. Rolling budget with is constant feedback loop architecture makes sure the information moves fast and effectively across the organization.  
3. Budgeting technique of crisis: Especially during the crisis when the realities and assumptions undergo tremendous changes at a very rapid pace. It is only the rolling budget which could be proven effective. All other budgeting techniques lack flexibility and are inherently not suitable for a highly dynamic environment.
4. Adaptability: Even in the normal course of business especially for startups and early-stage companies it is very difficult to predict the size of the market, customer response, competition moves, industry trends, etc thus these businesses lack the medium to long term visibility. Under such a scenario the only effective technique is rolling budgets. This empowers early-stage entrepreneurs in the right direction thus create confidence in their strategy and action.

So if you are still not ready to implement rolling budgets into your company.

Just think twice!!!

Write to me if you wish to know how I implemented rolling budgets in a conglomerate having turnover of a Billion Dollar.