Definition: A continuous budget is a dynamic type of forecasting that involves adding monthly updates to the end of the time period on a rolling basis. In other words, it is a budget in which a new month is added for each passing month.
What Does Continuous Budget Mean?
A continuous budget helps business leaders keep their budgeting process up-to-date as a year progresses. In a traditional budgeting system, an annual budget is prepared and remains static while the company is experiencing constant changes. As a result, a budget that has been prepared for a fiscal year starting in January could be irrelevant by April.
A continuous budget allows business leaders to update projections based on what’s going on in the environment surrounding the business. If there are changes with competitors or the economy during a fiscal year, it can be reflected in the budget so that projections stay relevant on an ongoing basis.
Let’s look at an example.
James is the accounting manager at a company located in Philadelphia. The next fiscal year for this company starts on January 1, 2017. It is currently December of 2016 and James is thinking about the benefits of keeping a continuous budget rather than an annual budget. The budget for the upcoming fiscal year has already been determined.
How would James go about converting his annual budget into a continuous budget? In order to convert his current budget into a continuous budget, James would simply need to prepare the budget for January 2018 to reflect any changes to the business during January 2017 that may have impacted the budget. After January 2017 has passed, that month should be removed from the budget so that the continuous budget represents a 12-month period. James would then need to repeat this step for each month going forward.