Budget vs actual: the monthly comparison that catches problems early

A budget versus actual comparison sets what you planned to earn and spend against what you actually earned and spent, line by line, month by month. It is the simplest management report there is and the one most small businesses skip, usually because the budget was built once in January and never opened again.

The value is not in the budget being right. It is in the difference being noticed while there is still time — a supplier price rise showing up in month two rather than at the year end, a marketing line spending three times its allocation, revenue tracking below plan for a third consecutive month.

Building a comparison worth reading

1. Set the budget by line at a level you will actually track. Fifteen lines reviewed monthly beat sixty that nobody opens.
2. Split the annual figure into months honestly, with seasonality. A twelfth of the year in each month makes every seasonal business look broken twice a year.
3. Show three columns: budget, actual, and the difference in money. Add year to date beside it — a single month is noise, three months is a trend.
4. Sort by the size of the difference, so the discussion starts where the money is.
5. Give each significant line a name. A variance without an owner is an observation.
6. Review within two weeks of month end, alongside the rest of the pack described in management accounts.

Difference in money, not percentage. A line that is two hundred per cent over budget at a hundred a month is noise; a line three per cent over on the largest cost in the business is the entire conversation. Reports sorted by percentage reliably direct attention to the least important thing on the page, and small businesses spend whole meetings there.

What to do with what you find

• Revenue below plan for one month is noise; three months is a forecast problem and the plan needs revising rather than defending.
• A cost consistently over budget is usually a budget that was wrong, not a spending problem — fix the number rather than fighting reality every month.
• A cost consistently under budget deserves a look too. It sometimes means work that should have happened has not.
• One-off variances need a note, not an action. The whole point of writing the cause down is that next year you know which months were unusual.
• Revise the budget mid-year if it has stopped being credible. A plan everybody knows is wrong stops functioning as a comparison at all.

Budget, forecast, actual

Three things worth keeping distinct. The budget is what you committed to at the start of the year and generally should not move, because it is what performance is measured against. The forecast is what you now believe will happen, and it changes as often as the facts do — covered in cash flow forecast for the cash side. The actual is what happened. Reports that quietly replace budget with forecast lose the ability to say whether the year went as planned, which is the one question the budget existed to answer.

Where it lives

Ettex Sheets is the natural home for the comparison — budget and actual side by side, with the arithmetic visible — and the actuals come out of Ettex Books. Where the difference needs decomposing into price, volume and mix, that is variance analysis.

The limit: no automatic budget import, no rolling reforecast, no alerting when a line goes over. The comparison is assembled monthly by a person, and for a business with fifteen budget lines that is twenty minutes rather than a system.