Everything you need to know about Budget vs Actuals
The Budget vs Actuals report is my favorite financial report
It’s the one report that show’s the readers how good of a grip you have on what’s happening financially in the business
➡️ What is a Budget vs Actuals report?
This report shows you what you have BUDGETED...
and what ACTUALLY TOOK PLACE
➡️ What information gets shown on a Budget vs Actuals report?
The truth is…
you can show anything on this report
though it’s most common to show your P&L, and metrics around cash
➡️ How often should you prepare a Budget vs Actuals report?
While this entirely depends on who is consuming this report, it’s highly advised to prepare this monthly
Because the sooner you catch any variances, the sooner you can understand whether you need to reforecast...
and that reforecast may set your business on an entirely different path than the one you’re currently on
➡️ What are some best practices in preparing a Budget vs Actuals report?
Here are my favorite tips:
1️⃣ Start by saving down a budget using a 3 statement model
When you forecast using a 3 statement approach, you gain much credibility by ensuring all 3 statements are in sync with one another
When you forecast using all 3 statements - your cash flows will be dynamic!
2️⃣ Analyze your variances on a summarized level, then drill deeper in to the details as needed
It can be pretty overwhelming to review your Budgets vs Actuals on a 300 line report.
Instead, start by analyzing the variances for each bucket - Revenue, COGS, Opex (by department), other income / expense, Cash flows / ending cash
3️⃣ Show GOOD variances as POSITIVE and BAD variances as NEGATIVE
Under this approach, the readers will be more easily able to understand what is happening at first glance
That means your formula for variances would be Actual - Budget for your income accounts, and Budget - Actuals for your expense accounts
4️⃣ Show both the $ variance, as well as the % variance
Did you miss your target by 180%? That may not be substantial if it equates to $200
Similarly, you may have a $400k miss on ending cash, but if you have $50m in the bank, you may not find that to be significant
Both metrics should be reviewed together
5️⃣ Provide commentary on each variance
Here’s where you really get the chance to shine
Explain what took place, and why there was a variance
With each added piece of commentary, you show the readers that you have your reporting under control
Those are my tips for preparing a Budget vs Actuals report.
If you liked this post, you'll also like my course on Building a 3 Statement Model.