We started this series talking about budgeting in uncertainty by giving strong guidance, staying flexible, and focusing on the short term. What I didn’t say outright is this: it requires your flexibility as a finance leader. You can’t afford to be dogmatic about one budgeting style. I’ve lived all of the objections:

• “Zero-based budgeting is a waste of time. Too old-school.”

• “Rolling budgets just create more work and distract from long-term goals.”

• “Nobody needs a fixed year budget, why even look back when you have a rolling budget?”

• “Long-term driver-based budgets are useless, who believes the hockey sticks?”

And here’s the truth: I’ve experienced them all. Each strategy has its moment, and the trick is knowing how to use each one and when. A quick snapshot from my own experience:

After going through it all, here’s what I’ve learned: the “holy grail” is a hybrid strategy that uses each budget tool and supplements it with scenarios and process tracking. Use the pros of each approach, avoid the cons, and blend them into one process.

At the end of the day, every method produces the same thing: a big spreadsheet of goals populated with numbers, drivers, and departments. The difference is when and how you use each tool.

For 2026, the best path forward is exactly that, a hybrid approach. Pull the best from each strategy to get the results you need.

Let’s get to work.

1. Start with a long-term plan based on drivers

Your long-term forecast is your baseline. You don’t want every department budgeting line by line five years out. Instead, use the long-term or operational model to set baselines for the long-term future. For a detailed deep dive, see our detailed article on operational models. But here are the highlights:

• Tie revenue to customers and order size. Make it clear whether growth comes from winning new customers or raising prices.

• Lay out your big bets. It should be crystal clear what big bets you are taking that have multi-year payoffs, and when they will pay off. 

• Tie sales and marketing expenses to new customers. Split S&M into what is required to attract and acquire new customers versus retain existing ones.

• Assume a stable gross % (generally). Unless you have a very strong thesis otherwise, assume COGS will track current gross margin percentages.

• Link headcount to revenue. Even in the age of AI, scaling requires more people. Build the link explicitly for departments that truly need it (say customer support).

• Show the long-term balance sheet ratios. Tie balance sheet items to drivers using historical ratios. This is a good check for debt covenant ratios.

Your long-term driver-based forecast should be updated regularly and should remain consistent with your core drivers. This informs your long-term strategy and also provides targets for next year.

Hint: Break everything possible down into a DuPont-style analysis until you reach the actual operational drivers that matter.

2. Build into a rolling budget for 2026

You need to use a rolling budget for 2026 because you will need to strictly coordinate responses to uncertainty across the company. To do that, you need to:

• Get the communication right. The difference between “rolling” and “fixed” is often just communication. Make it clear from the start: teams should budget for the next one or two quarters, knowing they’ll update again next cycle.

• Be the referee on long-term priorities. Short-term focus doesn’t mean abandoning long-term goals. You and the CEO need to define the essentials that must happen now to set up future success.

• Prioritize your energy in the short term. Put the majority of your attention into the upcoming quarter and align tightly with other departments.

• Update the forecast each month. We talk a lot about this in the linked article above. But, each month you will need to extend and roll out the budget to take into account new results.

• Plan for upside, not just downside. Don’t only prepare for misses. Build scenarios for exceeding expectations so you’re ready to scale quickly instead of just banking the extra profit.

This level of agility would have been nearly impossible without today’s tools. But for fast-moving businesses, a rolling budget delivers unmatched flexibility and coordination.

Tip: Rolling budget doesn’t mean “adjusting downwards every quarter.” It means shifting strategies in a coordinated manner based on new results.

3. Fix into a yearly budget for reference

Once your rolling budget is built, you need to lock it into your end-of-year (EOY) 2026 goals, which are your yearly fixed budget. This is particularly important when you’re making multi-quarter investments (R&D, product launches, construction). You will present this to the board at the end of the year for reference. It comes in handy to:

• Use as a reference for the rolling forecast. Ideally, if you miss for a quarter you will want to reforecast a way to get back to (or surpass) your initial budget.

• Align funding to long-term commitments. For projects with multi-quarter cash requirements (CapEx, leases, debt service) lock these into the fixed budget so they are protected from short-term cuts.

• Reinforce capital discipline. Tie off-budget adjustments to metrics like ROIC, cash conversion, and free cash flow. If a project slips, require offsets to maintain the same EOY cash target. Not just an update to the rolling budget. 

• Incorporate covenant and liquidity planning. For one-year fixed budgets, CFOs must tie reporting to liquidity needs and any debt covenants. Missing these targets can have immediate consequences.

Done right, this anchors your rolling budget into a credible year-long financial plan, which can be trusted by investors, lenders, and the board, and still leave the flexibility to course-correct inside the year.

Tip: For one-year horizons, focus relentlessly on cash, covenants, and commitments. Those are what will matter most if the macro picture shifts.

4. Use zero based budgeting for specific departments

It is rarely about starting from scratch across the whole company as it’s too time-consuming and disruptive. But at the department level, it can be a powerful reset tool for a team that has built up a lot of cruft over time or has become unwieldy. I’m not going to get into the details of how to do it (Bain has a decent overview). Instead, here is when to use it:

• Department reset. When a team has been layering costs year after year, zero-based budgeting cuts through the “crud” and forces a fresh start.

• New leadership. A new department head benefits from a ground-up budget. It clarifies what’s essential, what’s waste, and where priorities need to shift.

• Increased accountability. Have the team list every responsibility, every person (by name and role), and every piece of equipment or resource. It forces transparency.

• Complete shift in department priorities. Don’t assume past spending levels. The exercise should define only what’s required to achieve results now, not what’s been done before.

Zero-based budgeting is too heavy-handed as a universal approach. But used sparingly, it delivers clarity, discipline, and a reset where it’s most needed. This should then be integrated into the rolling budget.

Tip: Consider this approach whenever a new leader takes over a department as it’s the fastest way to surface what’s truly essential.

5. Build great scenarios

In uncertain markets, the single most important thing to protect is your key drivers. We go into detail on scenarios here. The best way to do this is through structured scenario planning. To do so:

• Identify the key drivers. On a company scale, often only 4 to 6 key drivers really matter. Focus on these within your scenarios.

• Integrate into your rolling budget. Create upside, downside, and base cases tied to your key drivers (e.g., demand, pricing, interest rates, customer churn). Keep them simple but responsive.

• Predefine corrective actions. For each trigger, document specific steps: hiring freezes, CapEx delays, marketing cuts, or drawdowns on credit facilities. This avoids paralysis when conditions change.

• Build sensitivity matrices to simulate cash and debt positions. Cash is king. Run scenarios against liquidity, debt covenants, and refinancing needs to make sure you never run short.

• Set hard triggers. Define “red lines” for performance (e.g., gross margin, revenue run rate, days cash on hand). If crossed, they trigger pre-agreed corrective actions.

• Communicate visually. Present scenarios to the board with charts that highlight key outcomes (e.g., cash runway under different cases). Make it clear you’re stress-testing the business.

Scenarios should be finalized and presented alongside the rolling forecast. This shows your leadership team and board that you’ve thought through multiple paths and are prepared to act decisively.

Tip: Limit scenarios to 3–4 high-impact versions. Too many dilute the message. The goal is to protect cash, maintain flexibility, and show that you’re in control.

6. Create a feedback loop by tracking performance

This doesn’t fit neatly into a “budgeting strategy,” but it’s one of the most valuable things you can do. Measuring performance keeps your team focused. To do so:

• Track budgeting time. Roughly estimate the meetings, revisions, and hours spent on budgeting. You don’t want perfection at the cost of pulling people away from operations for months. Do this at the beginning and the end of the process.

• Assign an OKR to budgeting accuracy. Hold your finance team, not just department heads, accountable for accuracy. Aim for near-precision on short-term forecasts and less than 5% deviation over the full year.

• Assess system efficiency. Measure how quickly your budget moves from “finalized” to being fully embedded in reporting. Long lags are a sign your tools or processes are slowing you down.

• Add a cycle-time metric. Track how long it takes to complete a budgeting round (from kickoff to sign-off). Best-in-class teams complete cycles in weeks, not months. 

By tracking these performance measures, you’ll know the cost of your own process.

Tip: Treat the budgeting process itself as a product. Measure it, improve it, and communicate wins back to your team. Lead by example.

In Conclusion

Budgeting in 2026 is about flexibility and guidance. You should use a hybrid approach to anchor plans in long-term drivers, flex with rolling forecasts, apply zero-based resets where needed, lock into yearly goals, and track performance. The real value of a CFO isn’t being dogmatic; it’s about guiding the business confidently through whatever future shows up.