5 Reasons to do your budget-to-actual comparison every month

You may think that your entrepreneurial business is making money.  You may even have money in the bank.  But are you really making money?  Is your business making as much money as it should be?  Learn more in this week’s blog.

Many people use cash as their measuring stick for success.  If they have cash, they are good.  If they don’t have cash, they aren’t.  Having cash when you are conducting a business doesn’t always mean the cash is yours.  On the other hand, your business could be generating less cash than it should be.   How do you know?  You know by comparing your budget to your actual results every month. 

Here are 5 reasons to compare your budget to your actual results every month.

1. Your budget will help you see if you haven’t paid something

One reason that you may have extra cash is that you haven’t paid something that you should have.  It could be materials or costs associated with a certain job.  By comparing your actual results to your budget, you will see the variances between your budget and your actual results.  All variances should be analyzed to determine why they are there.  You want to make sure that you have accounted for everything and that nothing is missing. 

Your analysis will show you if there is an annual bill that hasn’t been paid yet.  If you have annual licensing fees or insurance payments, your well prepared budget will show you not only what you should have  paid each month, but also which items did not get paid.  Your careful analysis can save you from a huge late charge or discontinuation of coverage!

2. Your budget will help you see trends

By comparing your actual results to your budget each month, you are able to see trends in the variances between actual and budget.  These trends can help you identify areas that need your attention.

You take this a step further by comparing your variances from month to month.  Now you can see when your costs are rising and determine why.  Once you know why, you will be able to make adjustments and corrections.  When you look at the reason for the variance, you can determine if your vendor’s pricing is going up or your buying habits have gotten sloppy.  Now that you understand the reasons for your variances you do something productive about them.

3. Your budget can help you see where you are spending too much

Too much focus in one particular area of your business can cause you to neglect other areas.  Comparing your actual results to your budget each month can help you see if this is happening.  By looking at your variances and trends from month to month, you will be able to see areas that may have slipped that you had not noticed before. 

By comparing your budget-to-actual results every month, you can make corrections in these areas before the small slips become a big one.  This will give you better control over the finances of your business by focusing you on your whole business at least once a month when you do your comparisons.

4. Your budget comparison shows if you are on track to make your profit goals for the year

If you wait until the end of the year to see if you made your profit goal, you will often be disappointed.  You need to be making adjustments to your business as the year goes along.  Those adjustments will help you achieve your goal.

You can see a good example of this principle in sports.  As a game goes on, the teams are always aware of the score of the game.  They know if they are ahead or behind and they make adjustments as they go along so that they make their goal.  You need to do the same thing with your business.  Doing your budget-to-actual results comparison is how you check the scoreboard in your business!

5. Doing your budget comparison is not hard

Your accounting software should have a place to enter your budget so you can run the comparison reports each month.  Once you have entered the budget numbers, you just have to run the budget comparison format of the income statement.  Now it is easy to look for the variances to your actual numbers each month.  Most accounting software will do the comparison for you; you just have to look for the items that are off budget.  Of course that means completing your financial statements every month, but that is another topic!

Scroll down and type YES in the comments if you complete your financial statements every month.  Type NO if you do not complete your financial statements every month and tell me what is keeping you from getting this done.  Chances are, I can advise or help you in some way in a future post!

You won’t be able to check your budget unless you have one to check your actual results against.  And comparing your actual results to your budget won’t mean anything unless the budget is complete and well prepared.  So refrain from rushing thru your budget.  Take the time to do it well so that your budget is a help and not a hindrance to you.

Your budget can be a valuable tool for helping you run your business.  Take these reasons to heart and do your monthly budget-to-actual comparison.  Doing this will help you see where you can improve your business and help keep you on track and your business profitable!

To learn more about cash flow and budgeting, sign up for my upcoming free online Cash Flow Workshop HERE.  I will email you when the next workshop is scheduled to begin as well as sending you a link to each new weekly post in the Budgeting Essentials Blog! I will be teaching my Cash Flow Workshop soon, so don’t miss it!

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God Bless your week!