Once you have your budget tracking system set up in your accounting system or spreadsheet, you need to begin using your budget as a tool to run your business.
I recommend that you review your actual versus budget reports at least once a month. A good time to do this is the 15th of the month. By waiting until the 15th, you’ll know that most of your vendors’ bills and invoices to your customers have been entered into you accounting system for the prior month. It also gives you time to reconcile your bank and credit card statements.
The first thing I recommend you do when you first review your budget versus actual report is to look at the variances for the totals of the major areas of the report, such as total sales revenue, cost of goods sold, gross revenue, general and administrative expenses, and net revenue. This gives you a good overview of the general budget areas of your business that are performing within expectations and those that are not.
Next, you should drill down and look closely at the line items that are performing above expectations and those that are below expectations. While doing this, you need to determine why these positive and negative variances are occurring. You also need to decide whether the variances are a one-time phenomenon or trends that need to be addressed by you and your firm.
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