BUSINESS How to Develop and Use a Budget XYZ Company - Budget Variance Report Category Rent Utilities Phone Internet Total Expenses Actual 2,000 300 283 333 2,916 Budget 2,000 280 300 310 2,890 Month of October 2019 Variance 0 (20) 17 (23) (26) Var. % 0% 7% 6% 7% 0.009% Figure 3. It’s important to review year-to-date budget variances. appropriate section of your accounting soſtware application. This will ensure that, going into the following year (the budget year; 2020 in our situation), the accounting soſtware will be able to generate budget variance reports. If you don’t have accounting soſtware, you can use your spreadsheet model data and add a budget variance feature. Budget variances are the difference between what we ex- pected (the budget numbers) and our actual numbers. There are usually standard budget variance reports available from typical modern accounting soſtware. We’ll use bogus expense numbers for just a few categories to illustrate this technique. A customary format would look like Figure 3. Interpreting Your Budget Variances As the year unfolds, pay more attention to the YTD numbers than each month’s numbers. You’ll also need to review numbers on a quarterly basis because monthly numbers can be erratic, and swings tend to settle down by the end of each quarter. A quick scan of the variances will reveal where you need to take a closer look. No need to study those categories that are performing as expected. It is recommended that you look at your YTD variance percentages first and then your variance dollars. If you get off to a bad start with soſter sales volume, start looking at how you can increase sales and reduce expenses. Caution: Code expenses to the appropriate general ledger categories 26 KEYNOTES FEBRUARY 2020 rather than placing them somewhere else just to make the budget accuracy (variances) look better. Conclusion So, now you are ready to go ahead and build your own budget. Read this article a few times. Use the spreadsheet model tem- plates and modify them to meet your needs. Or, use the prin- ciples discussed to construct your own. Then load the budget numbers into your accounting soſtware, and you are ready for next year. Next year, generate monthly budget variance reports from your accounting soſtware application and use them to manage by exception. If it ain’t broke, don’t fix it. The next article will be “A Business Blueprint: Connecting the Dots,” where we will discuss how the various topics covered in previous articles come together for success. Noel Flynn is a degreed business management con- sultant with global senior leadership experience, including more than 20 years in manufacturing, wholesale distribution and consulting sectors of the security industry. Noel has been a senior execu- tive, officer, board director and advisor to not-for- profit and for-profit companies in numerous industries worldwide. This includes being an ALOA board member since 2011, and he is also an ACE instructor, developing and teaching business management. WWW.ALOA.ORG Actual 20,000 3,000 2,833 3,333 29,166 October Year-to-Date 2019 Budget 20,000 2,800 3,000 3,100 28,900 Variance 0 (200) 167 (233) (266) Var. % 0% 7% 6% 8% 0.009%
