Manufacturers are facing uncertainty on a variety of fronts. Rapidly shifting tariff policies, supply chain disruptions, fluctuating demand and rising raw material costs are likely among the factors creating shaky ground for your business. But two proven financial planning tools can help you better navigate the instability: rolling forecasts and financial modeling.
1. Rolling Forecasts
Many manufacturers rely on traditional static budgets. These budgets are typically created toward the end of the preceding fiscal year, based on the company’s current data. They’re often regarded as “set it and forget it.” In other words, management doesn’t review or adjust the figures until the end of the fiscal year. In the meantime, the budget may have become completely out of sync with reality and useful for little more than year-end variance analysis (that is, how the budgeted numbers compare with the actual results).
That may be all that’s required for smaller, more stable businesses; however, manufacturers often fare better with rolling forecasts, which facilitate greater ongoing control over finances. Grounded in current information, rolling forecasts take a continuous and more reliable approach. The figures are regularly revised as new conditions come into play, enabling more agile responses.
Specifically, while a rolling forecast generally projects the coming year — like a traditional budget — it’s updated at the end of every interim period within that year. You can update it on whatever incremental basis you prefer, such as monthly or quarterly.
As each increment within the year ends, an additional and equal period is added at the end of the forecast. So, when May 2025 ends, for example, May 2026 is added. At that point, numbers throughout the projected year can be revised to reflect the most recent information, such as market and economic conditions, government regulations and policies, and consumer sentiment.
A rolling forecast shouldn’t be considered a substitute for a traditional annual budget, though. Rather, a rolling forecast works in conjunction with the budget, evaluating the predicted figures in light of additional information. If you abandon your initial budget, you can quickly forget about the expectations and goals that drove it and inadvertently revise them downward simply because the rolling forecast is less encouraging at a certain point in time.
2. Financial Modeling
Financial modeling — also known as scenario planning — can provide valuable guidance amid evolving circumstances by testing how various assumptions are likely to unfold. It’s particularly useful when weighing upcoming initiatives, such as capital asset purchases, new projects or business expansion, that require a hefty investment and affect cash flow.
To model the impact of different tariff policies, for example, first identify all the countries that are part of your supply chains, whether you deal with those countries directly or indirectly through your suppliers, and the applicable tariffs. With this information, you can develop a financial model to project how various sourcing scenarios would affect your finances.
The obvious inputs for the model are the costs of foreign vs. domestic or other foreign sources. You also need to account for how each option would affect your labor costs, pricing, cash flow and profits. Even if you aren’t contemplating large investments, the results can guide the development of solid contingency plans that leave you less vulnerable to changing policies and, ideally, well positioned to gain a competitive advantage.
Don’t Go It Alone
Rolling forecasts and financial modeling come with obvious benefits for manufacturers, especially in a tumultuous environment. But they can also be difficult to develop and maintain without adequate resources. We can help you make the most of these critical tools.
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