At the start of a financial year many businesses prepare detailed budgets to set targets and guide decision making. But simply setting a budget is not enough. Regularly comparing your actual financial results against your budget, known as a budget versus actuals review, is essential for staying on track and avoiding unpleasant surprises later in the year.
Why Early Reviews Matter
Small discrepancies between budgeted and actual figures may seem insignificant at first. However, these variances can compound over time and lead to cash flow problems, missed profit targets, or unexpected expenses by year end. By reviewing budget versus actuals regularly, monthly or quarterly, you can identify emerging trends early and take corrective action before minor issues escalate.
Common Areas to Watch
When conducting your review pay close attention to:
Revenue Shortfalls: Are sales below budget? Understanding why can help you adjust marketing or sales strategies promptly.
Rising Costs: Operating expenses creeping above budget can quickly erode profit margins. Look for unexpected increases in supplier costs, wages, or overheads.
Cash Flow Timing: Sometimes revenue and expenses occur off schedule. Delayed payments or upfront costs can disrupt cash flow even if totals align with budget.
One Off Items: Non recurring expenses or income can distort your results. Identifying these helps maintain a clear view of ongoing performance.
How to Spot Gaps
Use Variance Analysis: Compare each budget line item with actuals and calculate the variance in dollars and percentages.
Set Thresholds: Define what level of variance requires investigation (for example, anything over 5 per cent).
Investigate Significant Differences: Determine if variances are one offs or indicate deeper operational issues.
Update Forecasts: Adjust future budgets and cash flow forecasts to reflect new insights.
What To Do Next
Once you have identified gaps work with your team to develop an action plan:
Reallocate resources to underperforming areas or cut unnecessary expenses.
Adjust sales targets or marketing efforts if revenue is falling short.
Negotiate with suppliers or review contracts to manage rising costs.
Review payment terms with customers and suppliers to improve cash flow timing.
Regular budget versus actuals reviews not only improve financial control but also support better strategic decision making, giving your business agility to respond to changes quickly.
