Not only is preparing a budget important for your business, but it is also imperative that your business regularly monitors and analyzes your budget to actual results.
The results of this report give you the insight you need to make important budget changes when and where they are needed. The ability to pivot quickly based on actual, real-world analysis pays off tremendously for your business over the long term.
In this article, we will be taking a look at:
- The basics of the budget to actual report
- Tips to help you analyze your report in an accurate and meaningful way
- How you can take your results and convert them into real action to improve your business in major ways
Understanding the Budget to Actual Report
Your budget is a plan that takes into account your income and expenses. However, the budget is static, and will not be accounting for real-world variances along the way, like unsteady economic conditions or sales analysis that may assume too much, either in the green or red. This is why the budget to actual report is essential.
The budget to actual report is a comparison of two sets of data. The report analyzes the variance or differences between your budget (what you planned) and the actual numbers you are experiencing in day-to-day business.
In your budget to actual report, you will be looking at and analyzing variances between your budget and actual collected data. In doing so, you will be seeing the deviation in your results and use that information to make changes.
Tips for Spotting Variances
To spot variances, you first need to understand how to calculate them. To find your budget variance, you may use either:
Variance = Actual – Projected or Variance = Projected – Actual
Furthermore, if you wish to calculate your budget variance as a percentage, you may use: Variance % = ([Actual – Projected] / Projected) x 100
When looking at the outcomes of your formulas, it is important to note that if your sales fall below your expected values or you spent more than you budgeted for, you will see a negative variance here.
If you see a positive variance, then it means that your sales were better than expected or your expenses came in below what you had budgeted for. Knowing this will help you spot and understand the reasons behind your variances very quickly which allows you to make the proper changes within your business to begin to see a positive variance.
It is important to keep in mind that no matter how well thought out and put together your initial budget is, you will more than likely see variances on your report and that is okay.
Again, common causes of variances are:
- Unexpected expenses
- Revenue shortfalls
- Even errors when entering data
Always make sure you check for errors either in the data itself or when entering to ensure accurate results.
Interpreting the Results
When interpreting your results, keep in mind a positive variance is a positive result. Meaning your sales were better than expected or you spent less than you expected to.
However, a negative variance typically means your sales were less than expected or you spent over what you had budgeted for.
Knowing what a positive or negative value means for your variance is only the first step – comparing your actual results to your budgeted amounts comes next.
When you see variances pop up, you can start by analyzing:
- Fixed overhead
- The amount spent on both material and labor
- Manufacturing expenses
Seeing the actual values spent in these areas vs the budgeted values can help you understand where overspending may be occurring or where your budget simply did not keep up with economic changes in those areas.
Using the Results to Improve Business Performance
Using your results to improve business performance is a huge aspect of why you are analyzing your budget to actual report in the first place, but many businesses still struggle with converting data analysis into tangible results at the end of the day.
When you see variances in your reports, either positive or negative, think of that as an opportunity to investigate further. The stronger your grasp on your reports and the reasons behind the results you are seeing, the more meaningful and impactful your insights and eventual changes will be on the performance of your business.
For optimal results, analyze your reports regularly for any changes that need to be made. Doing so could save your business a hefty sum of money by year’s end.
Get the Most Out of Your Budget to Actual Report
Utilizing your budget to actual report can be a game changer for your business.
Knowing how to read variances, interpret the results of the report, and spot areas that you can quickly act on in order to see meaningful changes are all important aspects of analyzing the budget to actual report and will without a doubt lead to improvements within your business.
However, not all businesses have:
- The time or resources to commit to the analysis of this report
- The experience needed to create an actionable plan based on the results of the report.
This is where the help of an expert like Pasquesi Partners comes in.
With many years of experience working with businesses just like yours, we feel uniquely qualified to help you not only break down and interpret your budget to actual report, but to assist in creating a plan that is best suited for you and your success moving forward.
Contact us today to learn more!