Understanding The Variance Between Budget Vs. Actual Report

Budgeting and forecasting are key to financial planning, but sometimes it can take time to determine if your budget is working for you. There’s more than one way to calculate profit, and the variance between the budget and the actual report can help you understand if your income expectations are accurate or need adjustments.

In this guide, we explain the difference between budget and actual reports, detail how they’re calculated, and show you how to use this information in your business planning so that you can make the most of budget templates.

What Is A Budget?

A budget estimates how much income and expenses a business expects to have during a specific period, usually one year. A budget is always in dollars and can be calculated by adding all anticipated spending (expenses) for the year or month, then subtracting that number from the expected income for that period.

For example, if someone were budgeting their spending habits for the next two months, they would calculate their expected expenses as $500 per month ($1,000 total). Then they would calculate their expected monthly income at $600 ($1200 total). The difference between what you spend and what you earn is your net income, so this person’s net income over the next two months will be $200.

What Is An Actual Report?

An actual report summarizes an organization’s financial activity for a specific period, usually one month, quarter, or year. It provides information about what happened during that time, such as how much revenue your business generated and how much money was spent on projects, among other things.

How Do You Calculate The Variance Between The Budget And The Actual Report?

The variance is calculated by subtracting the budget from the actual report, then dividing that number by the budget and multiplying it by 100%.

For example, if your budget was $10 and you spent $11, your variance would be 10% ($11-$10/$10*100%). If your budget was $100, but you only spent $50, your variance would be 50% ($50/$100*100%).

If you spend more than what the budget dictates, your variance will have a positive value; conversely, if you spend less than what the budget dictates, your variance will have a negative value.

It is also important to consider how much money has been lost in each area of expenditure. Spending the same amount on everything, no matter what percentage is allotted for those expenses in your budget, could affect your percentage over or under. For example, let’s say you set a monthly goal of spending $8 daily on food. You may find that some days you go out to eat at restaurants while others cook at home or order delivery instead.

Sign Up For A Professionally Designed Dashboard

If you’re looking for a budget vs. actual dashboard template, Biz Infograph can help you. They offer numerous dashboard templates for small to mid-sized businesses and individuals looking to manage their personal finances.

The templates they offer include a sales budget dashboard, an HR training dashboard, and an all-in-one financial dashboard, among others.

Sign up for them today!