For this system to work effectively, you need each department to record their data accurately in a compatible, accessible format. Secondly, someone has the tricky task of analyzing it all. The greatest challenge when creating a variance report (and a reason why many SMEs don’t do it well - or do it at all!) is collecting all the necessary data.įirstly, pulling together information from different departments is time-consuming. A significant disparity between budgeted income and actual income could indicate a weakness in your sales department, for instance. On other occasions, variances can signify deeper problems in the company. For example, supply chain disruption might force the company to spend more on an expensive alternative. In contrast, an unfavorable variance means that income was lower than forecast, or outgoings were higher.Īn unfavorable variance is often the result of a one-off issue. A favorable variance means that income was higher than expected, or outgoings were lower. If there are significant differences between the budgeted figures and actual figures (termed “favorable” or “unfavorable variance”) this can flag up potential problems. In addition, it will help you to create better forecasts in the future. Taking the time to carry out budget vs actual analysis will give you a better understanding of your company’s current performance. Essentially, it involves comparing your budget with what you’ve actually earned and spent. Budget vs Actual analysis is a bit like a financial reality check for your business.

Monthly income spreadsheet