You, as an owner, always need to be on the lookout for the information that will make your business more productive. That is the reason you must know how to prepare a budget performance report.
What is the Budget Performance Report?
The budget performance report is an analytical instrument that lets you know how your business is doing. This report compares the actual performance of your business during a specified period with the expected or budgeted.
Budget Your Expenditure
For a small business owner preparing budgets is a way of planning future expenditures. It is the place where you quantify how much sales your business needs to generate and how much expenditure you could afford over the period under discussion. The budgets also tell you whether or not you should look for external financing.
Know Budget variances
Most financial budget processes are initiated on an annual basis. However, it is beneficial to track budget variances monthly. Such a budget performance report compares money spent with the amount of sales generated over the month.
It is a task better done using budgeting and forecasting software. With a few clicks of the mouse, you get to know the budget variances. If they are excessive, it means you need to take corrective steps to improve your budgeting process. It will ensure that your business' financial needs are anticipated and met.
How to Generate Budget Performance Report for Your Small Business
Most importantly, the software assists you in the generation of various other financial statements or reports for your business. Using it, you can prepare a budget performance report with four columns.
The columns are as follows:
- Actual Amounts
- Budgeted Amounts
- Variance Amounts
- Variance in Percentage
After logging in the software, search for and click on "Reports" in the menu on the left hand. Click on "Report Gallery" and then search for "Budget." It has two reports "Budget Analysis P & L and Budget Analysis Balance Sheet." These two reports contain the budget and performance-related components.
The Budget Analysis P & L report is rightly suitable for your purpose. It gives you information on your business' performance laid out in four columns that are listed above.
The third column gives the difference between the budgeted and actual amounts. If the difference is positive (actual numbers are better than budgeted), then it is called favourable variance. Otherwise, it is termed as the unfavourable variance. You experience it when you forecast too high revenues or budget too low expenditure.
Actionable Budget Performance Information
The budget performance report enables you to pinpoint the areas where your business has performed as expected and met the budgeted numbers head-on. It also reveals areas where the business has failed to do so.
The information may point to financial or non-financial causes responsible for the variance and the budget going outside its bounds. Most commonly, it is the increased resources or additional costs. It could also arise from the replacement of inferior resources or increased expenditure on employees.
If you are still wasting time and resources on doing accounting manually, you need to think hard about it. Digitizing your business' financial information using online budgeting and forecasting software is always the better option. It processes the data instantly and generates financial reports that you could use for decision-making. When you have a detailed analysis at your disposal, it becomes easy to take care of the areas that need improvement.