Things don’t always go as planned when it comes to business. The expected revenue and expenses projected during budgeting won’t be the same as the actual number. Therefore, comparing the budget vs. actual is a great way to measure the company’s financial performance. A budget is a pre-determined report at the beginning of the fiscal year that projects that forecast the income and expenses. Whereas, actuals are all the financial transactions at the end of that year.
What is Budget vs. Actual
Budget to actual variance analysis or in the simpler term “budget vs, Actual” is the comparison between the company’s planned financial transaction for a given period (budget) and the final report of all the financial transactions at the end of that period (actual). It is the total cash difference between the budget and the actual number. It can be represented as numbers or percentages. This variance can be under or over the amount specified in the budget report. Variances are mainly caused by errors in budgeting, changes in inventory or manufacturing cost, or inaccurate expectations. Budget and Actual variance reports can be helpful for you drafting a budget for the next fiscal year that helps you get an accurate financial report and focus more on the growth of your company.
Importance of Budget vs. Actuals
Comparing budget and actuals helps to review your company’s performance and make wise decisions based on the variance. If the variance is high, serious measures have to be taken into account to review the causes of these variances that affect the performance of the business. Companies should identify the areas where they can cut costs and focus on generating more revenue.
The budget vs. actual report will help you analyze the spending pattern of different departments of your company and optimize your departments for an enhanced ROI. It helps to understand where you went wrong and find out necessary solutions to avoid repeating past mistakes.
By understanding the spending patterns and income from variance, you can optimize your finances by cutting down unwanted expenses and allocating those resources to optimize your business and generate more revenue. A proper error-free budget that performs well could be drafted for the next year that helps to create a more accurate financial report.
Budget vs. actual will also help you to explore means to improve the profitability, identify expansion possibilities, Reduce operational costs, and opportunities of scale to lower purchasing and manufacturing costs
Agile e-Platform will help you grow your business by eliminating errors and unnecessary costs that open up the opportunity for higher margins and increased profitability. Contact us for more information.