September 29, 2022
If you’re in business, there’s a good chance that you’ve learned a lot of what you know on the fly. There are surprisingly few people with business or finance degrees starting companies, though, so that’s not really that uncommon.
As you make your way through the business of business, you have probably run into terms you don’t know. Budget to actuals is a common one. Read on to find out what budgeting and variance analysis is, how a financial variance report is created, and what it can tell you about your company.
Every company creates some kind of budget for various departments or even for individual projects or orders. These are all based on our assumptions of how much we will have to spend to get a particular job done.
However, there’s no way of knowing with any certainty if your assumptions are correct without comparing your budget to the actual cost or spending your company has done for that department, project or order. This is why it’s called budget to actuals, and budgeting and variance analysis examines the difference between these two figures to determine how future budgets can be improved to be more accurate.
You might be creating a budget to actuals report without even realizing that you were doing that. Whenever you do “job costing” on a project or compare any kind of actual spending with your estimated cost, you are calculating the actual budget variance.
In order to get the maximum effect from tools like the budget to actual analysis, you do need to create budgets for all of the different departments and functions of your business and then compare your actual costs on a regular basis. This will allow you to make changes to your assumptions about your costs and help to identify potential problem areas that are far above or below their budget.
As you might have noticed, in the accounting and finance world, there’s often more than one term for the same or similar things. Here are some of the other common questions about budget to actuals that you might have heard from someone along the way:
In business, you always have your assumptions and estimates, which are usually your budgets for various processes or projects. You also have the actual cost of those things. Actual budget variance is the difference between the two.
If you keep estimating and assuming what things are going to cost and never actually measure the real cost as a comparison, you will never know if your estimates and assumptions are accurate. A budget to actual analysis helps to identify where you have been over and underestimating costs so that you can adjust your budgets accordingly.
How often you do a budget to actuals report really depends on what you are measuring. If you are comparing your departmental budgets with their actual spending, quarterly or even annually would be sufficient. If you are comparing budget to actuals on a specific product, order or product line, you might compare budget to actuals more frequently.
Financial variance reports can look a little different depending on what you are comparing. However, they share a few similarities. Usually, you will have one column that lists all the budget items you are comparing and then a column for your budget amount. There will usually be a difference column, and often, that difference will also be presented as a percentage.
Most financial variance reports will have figures per budget item, as well as total figures so that you can see what the overall variance was.
You can probably see that a budget to actuals analysis is a good idea for your business, but the thought of trying to extract, add and enter all this data from your accounting system into a budgeting and variance analysis spreadsheet does not sound appealing.
That’s exactly why we created the LiveFlow platform. It’s an easy-to-use system that creates a live link between your QuickBooks accounting system and your custom Google Sheets reports. Data can be mapped to cells based on your specific requirements, and whenever your accounting system is updated, so is your budget vs actuals report.
If you’d like to know more about LiveFlow and how it can help you to automate your financial analysis and reports, reach out to our team. We’re always happy to answer questions or show you how it works.