The best way to keep your financial plans updated throughout the year is to plan a year ahead and make sure that you don’t go overboard.
Except it’s not.
What happens when something unforeseen occurs? If you’re running the business finances you’ve probably witnessed more than once how one tiny change in the market can influence your entire financial planning in a second. Therefore, you’d want to have a model that is not as robust and is more prone to change. That’s where the 2-10 rolling forecast comes in. It’s an extremely powerful tool that enables companies to keep their financial plans up to date all the time.
Read Rolling Forecast – 101 Guide For Smarter Planning
In this blog, we’ll break down what a 2-10 rolling forecast is, how it works, and why it’s a game-changer for businesses of all sizes.
What is a 2-10 Rolling Forecast?
Similar to a 3-9 forecast, a 2-10 rolling forecast is a financial planning model where actual results are combined with a plan. This model, however, takes data from the last 2 months as a starting point and combines them with a forecast for the upcoming 10 months. So in fact, you’re not relying on a year-long budget created at the start of the year, which is very robust and tends to be quite difficult to manage. This type of financial planning uses a rolling forecast to continuously update your outlook every month, which brings a lot of benefits.
For example, if you’re in March, the forecast includes actual financial results for January and February and projections for March through December. When April comes, you’ll update the forecast to include actual results for March and revise the rest of the year’s forecast.
Why Should You Use a 2-10 Rolling Forecast?
A simple answer to this question would be – it brings more flexibility. But what does that actually mean for your business? Here are several reasons why a 2-10 forecast is the way to go:
It helps you stay agile and adaptive
Imagine having to deal with quick market changes. Or internal developments and disruptions. Or sudden and unexpected events. Sounds like a very possible scenario in business, right? All of these are much easier with a 2-10 rolling forecast. Primarily because you allow your financial plan to evolve every month.
This sounds like you don’t have so much control over it, but it’s quite the contrary. Since you’re regularly updating your forecast, you gain a clearer and more current image of your financial health. And in the end, this gives you the ability to adapt to all sorts of changes in no time.
You get to solve problems proactively
If you dedicate your time to budgeting and forecasting only once a year, it really makes it hard for you to anticipate all the possible challenges. Not to mention the fact that this data can become outdated very quickly.
With a rolling forecast, you can spot trends early and adjust your strategies before potential issues turn into major problems. For example, if sales are slowing down for any reason, you can adjust expenses and investments to avoid overspending or missing growth targets.
It makes your business decisions better
Your 2-10 rolling forecast always reflects the latest financial data. This makes it easier for you to grasp your current, actual state better and make faster and more informed business decisions. Whether it’s managing cash flow, adjusting marketing budgets, or planning for investments, you have a real-time view of your financial landscape. This helps leadership teams align their goals with the current reality.
How to Implement a 2-10 Rolling Forecast
Thinking of implementing a 2+10 rolling forecast, but not sure how? Here are a few tips to set you on the right track.
1. Make sure your data is correct
Well-planned is half done, right? Meaning, if you start on the right note, your chances of success later on are much higher. So make sure you get this starting point right – get the correct data. This is the pillar of your financial planning model.
In this case, you’ll need accurate and up-to-date financial data for the past two months to get started. This includes revenue, expenses, cash flow, and other key performance indicators (KPIs) important to your business
2. Choose the right tools
Reap the benefits of the digital age and use digital tools. Nowadays, there are many financial planning tools available that make it easy to manage rolling forecasts. Spreadsheets like Excel can work for smaller businesses, but many mid-sized and large companies use specialized software (e.g., Adaptive Insights, Anaplan, or Farseer) for greater automation, more complex operations, and accuracy.
3. Involve key stakeholders
A rolling forecast isn’t just for the finance team.
Remember your pillar? To get the most accurate data you can get, it’s important to involve other departments, such as sales, operations, and marketing. And not just to check the numbers, but also to ensure all the assumptions in your forecast are realistic. This collaborative approach will ensure that everybody is on board with the idea.
4. Review and adjust. Regularly.
This is the tricky part. This type of forecast demands regular dedication. To make sense, it needs to be reviewed against actual results, every month.
While reviewing, it’s important to update it with the latest data, market trends, or any new developments. This ensures your financial plan remains relevant and accurate with time.
Common Challenges with a 2-10 Rolling Forecast (and How to Overcome Them)
Now that we’ve covered the positive sides, it’s time for a reality check – it’s not perfect. But nothing is, right?
So here’s a list of common challenges that companies using 2-10 forecasts usually face.
- Dealing with the wrong data. Garbage in, garbage out. It’s that simple. Your forecast is only as good as the data you feed it. Make sure you have a system in place to collect and verify accurate data before updating your forecast each month.
- Not getting everyone on board. Not everyone may see the immediate value of a rolling forecast, especially if they’re used to traditional annual budgets. To get everyone on board, emphasize how a rolling forecast helps your business stay agile and make smarter decisions.
- It can be time-consuming. It’s important not to overwhelm your finance team with excessive updates. Stick to a regular monthly update schedule and ensure that the forecast process is streamlined to avoid overburdening anyone.
The Future of Financial Planning is Rolling
If you’re looking to stay competitive and agile in business, the 2-10 rolling forecast is the way to go. Providing an up-to-date and flexible approach to financial planning, it allows you to adapt quickly, make informed decisions, and avoid the pitfalls of relying on static annual budgets.
If you’re still relying on old-school budgeting methods, this is not wrong. Just make sure your financial planning method works for you and rethink whether this is the best way. If at any point you realize that you need more flexibility, a more realistic image of your financial state, and more agility in general when it comes to financial planning – then a 2+10 rolling forecast is a very good alternative.
