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Budget vs Actuals



There are fewer reports that are as valuable as a Budget vs Actuals.


In fact…of all the reports, I’d say this one is easily my favorite.


Why? And how do you prepare one?



What is a Budget vs Actuals Report?


A budget vs actuals report is what it sounds like…


it compares what ACTUALLY took place…


compared to what you THOUGHT would take place.


Budget vs Actuals Report

This can be for any area of your business…


but most commonly, you’ll want to share a summary of you P&L, and cash flows.


Other options can include metrics related to headcount, or sales

 

Why is a Budget vs Actuals Report so valuable?


Remember when I mentioned that this is my favorite report?


Here’s why…


Your Budget vs Actuals showcases to stakeholders how tight of a grip you have on what’s happening in the business.


By stakeholders…that can be

👤 the CEO

👥 Management

👥 The Board of Directors

👉 yourself


Now…this doesn’t mean that you need to have 0 variances across the board.


As sweet as that would be…it’s just not feasible.


What’s more important is that you have a story for each variance…


which shows that you have a deep understanding of what took place, and why it did / didn’t match what you thought would take place in the business.


A budget vs actuals is also a great way to condense the most important KPIs of your business into one report…


ideally with pretty design 🤩

 

How do you Prepare a Budget vs Actuals?


OK…so we now know why a Budget vs Actuals report is so valuable.


How do you prepare one?


Step 1: Lock down a budget


To start…you need…um… a budget.


I know this sounds obvious, but this is a huge step that many people miss!


By budget, I mean:

→ a 3 statement model

→ that matches your chart of accounts

→ that you can easily actualize


The idea is you would save down your forecast as a separate version that you would no longer edit…


that now becomes your “budget”.


You’ll continue using this each month, until you feel there is a need to create a new budget, after which you’ll save down the new version and adopt that as your new budget.


Although the frequency of reforecasting can depend on your business, I often times see this done quarterly.



Step 2: Outline your data, and populate your formulas


Start with outlining what data you want to pull into your budget vs actuals…

don’t worry about design yet, we’ll do that at the end.


Once you have things properly designed, start populating your formulas to dynamically pull in this data


How to Prepare a Budget vs Actuals

Step 3: Populate your variance for #s and %s


OK…now you have your data outlined & populated…what’s next?


Calculate your variances.


But don’t make the mistake of just showing the # variance…


you need both the # variance as well as the % variance to understand the magnitude of the variance.


To better understand good variances vs bad variance, I like to structure my variances so that


POSITIVE variances mean a good thing, and NEGATIVE variances mean a bad thing.


That means for income & cash accounts, you’ll calculate actual - budget


for expense accounts, you’ll calculate budget - actuals


I see people use conditional formatting here, which can also be useful


conditional formatting for Actuals VS Budget

Step 4: Do a deep dive on your variances


OK…now we have an understanding of where we were on, and where we were off.


Now it’s time to drill into these variances to get the full story.


Was it an unexpected expense that came through?


Was there a mistake in our forecast?


Was there a chance in our business model?


This is where you’ll want to spend the most of your time, ensuring you can explain each line item, and answer any questions.


This is also where you’ll want to leverage your friendship with those in the accounting department to help you get the answer you need.


Step 5: Finalize with pretty design 🤩


OK, now you made it to the end!


Don’t forget one of the most important pieces of your excel file…

pretty design.


We humans are creatures of design - making this extra investment yields large returns!


Budget vs Actuals Report


 

A budget vs actuals report is not an easy report to produce…


but through this experience, you gain a greater understanding of the business…


and you sharpen your skills as a CFO who can plan, and analyze what’s happening properly in a business.


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