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Variance Analysis – The Directors Dashboard (Part 3)

In part one of my blog on the Directors Dashboard I listed a number of business areas that you would expect to keep close tabs on and in part two I expanded on one report which was the Client Visitation form which was more suitable to the service industry. This part three is about my pet report – the Budget Versus Actual (BVA) or as us accountants refer to it, the Variance Analysis (VA) and every business should be focusing on this every month or at the very least quarterly.

It still surprises me how many small businesses, and even some larger ones, fail to give thisthe level of importance it deserves. Frankly it matters not what you call this critical piece of paperwork, nor does it matter if its computerised or written in blood, what matters is that it’s set up properly, it is accurate and it’s on your desk as soon as practical after the end of every month. I used to nag for it within seven days, but in essence I think fourteen is ok, unless your business is in trouble. In fact, when I used to run restaurants we would create them weekly and I’m sure many restaurateurs do.

Using our Variance Analysis

I guess the whole point of a BVA is to keep control of or keep an eye on where your financial performance is compared with what your original intention was and to me, that’s THE most important report we can produce. True, client retention, cash flow and revenue growth are up there, but if you’ve created a realistic budget and you’re comfortable with it, then setting the company’s actual performance against that projection, is critical information you just can’t do without.

As to laying one out (you can download an example below), give thought to the way most companies lay their management account’s out and expect to adopt the same as really, such a layout starts with the way the Inland Revenue expect your accounts to be laid out when posted to Companies House and that layout filters its way down to us.

In truth, there’s no law saying you have to lay your management accounts out in any particular way, or indeed that you have to even do them but following the same criteria will make things easy.

As per the layout downloadable below, either you or your finance manager should aggregate total revenue and costs for the period, work out the gross and net margins and set these down. Ideally there will be six columns, from left to right the first two are for the given period (i.e. current month end ) and for the period actual and period budget, giving you the ability to easily compare the current month’s performance against budget, which will be shown in column E. The second three columns (column G, H and I from left to right) are for the cumualtive values to date of both actual performance and budget, with column I showing the variance between them.

For example, in period 11, column G will show the total income and expense for 11 months or periods. Column H will show the total of those figures that was budgeted for the same period. Perhaps predictably, column I will show the difference or variance between column’s G and H.

Trust me, a fantastic sheet of information that no good director should be without.


You can download the Budget Versus Actual (BVA) report here.

avatar Name: Alexandra Eager
About: Alex has worked as a Financial Controller and Finance Director for many years for a variety of companies across a range of industries but more recently she has moved away from accounting working for an internet marketing agency as Finance and Operations director, primarily overseeing the finance functions and search engine optimisation (SEO) for clients. Follow Alex on G+ and on Twitter @Alex_BusDirUK
Alex runs her own company with two fellow owners developing a suite of e-commerce web sites and promoting them directly. “I found that SEO and finance were quite compatible both needing an eye for detail, research and analysis as well keeping up with new developments and changes.”

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