Budgeting is fundamental for businesses because a budget dictates what funds the company will have available to complete operations or pursue projects. Companies have two choices for how to approach their budgets: regular and rolling. These choices refer to budget term length, not the actual budget process such as zero-based or production-based.
Regular Budget Defined
A regular budget is a plan for handling the expenses and income your business will have within a set period. Normally, the budget period is 12 months, or one year, but in some cases, such as with specific projects, a regular budget may involve other periods of time, such as a quarter of the year. The budget remains the same through the entire budget period, although different approaches to a regular budget compare and accommodate what your company planned versus what actually happened. With a regular budget, the time left in the budget gradually decreases, such as 12 months, 11 months, 10 months and so on; you do not create a new budget until the time covered by the entire budget plays out.
Rolling Budget Definition
A rolling budget is a specific budgeting approach in which you continually add a new budget period as one budget period finishes. This approach results in always having a full, 12-month budget for the company. For instance, suppose you created a budget that started January 1, 2030 through December 31, 2030. Once January was finished, you would create a new budget for February 1, 2030 to January 31, 2031. Aside from looking at the budget more frequently, the processes related to working with the budget -- for example, subtracting expenses from income -- are essentially the same as with a regular budget.
A regular budget means you don't have to spend as much time working with your budget. Your company's managers can concentrate more on other organizational processes as a result. A regular budget also creates a good system for comparing trends, as you always deal with the same budget period from budget to budget.
By contrast, with a rolling budget, there is little room to get into debt, as problems in one month impact what you do in the following month. This helps you keep your company accountable for everything it does that relates to the budget. You always have a projection for the the same amount of time, which makes it easy to compare spending based on divisions of the budget term length.
A major disadvantage with regular budgets is that they often are outdated nearly as fast as finance and accounting officers construct them. Creating a series of regular budgets -- known as flexible budgeting -- can help accommodate changes to plans, but flexible budgeting still looks at similar activity levels, such as production amounts, over the entire budget term length. They don't allow for constant reevaluation of whether those activity levels actually will even need to be included in the budget based on company circumstances.
The major disadvantage with rolling budgets is that you have to create a new budget more frequently, requiring more work. Because of the time it takes to gather certain data necessary and arrange for budget meetings, doing this on time isn't always possible or practical.
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