# Budget vs. Actual: How to Do Variance Analysis

If you’re a business owner or financial analyst, then you’re likely familiar with the term “budget vs. actual analysis.” This kind of analysis compares your actual financial outcomes to what was anticipated or budgeted for a certain time frame, such as a month or quarter. This article will provide a step-by-step guide on how to do variance analysis in budget vs. actual reports. By following the steps outlined in this article and utilizing software like CashflowFrog, you can perform actual vs budget variance analysis with ease and make informed decisions to improve your business.

## What is budget vs. actual analysis?

Budget to actual analysis is a process used to track and compare the actual financial results of a business with its planned or budgeted results. This analysis, also known as budget vs actual analysis, helps to identify whether a company is on track to meet its financial goals and objectives or if there are any variances that need to be addressed. This analysis helps to identify whether a company is on track to meet its financial goals and objectives or if there are any variances that need to be addressed.

## Budget vs. actual variance formula

The formula for calculating the variance between the actual results and the budgeted or planned results is straightforward. You simply subtract the actual result from the budgeted result and then divide the result by the budgeted result. This will give you the variance percentage, which you can then analyze.

The variance percentage formula for actual vs budget is: (Actual – Budgeted) / Budgeted x 100. This formula provides a percentage value that indicates the variance between the actual and budgeted results. By analyzing this variance percentage, businesses can identify areas where they need to improve their performance or adjust their budgets to align better with their actual results. This is a critical part of budget comparison and financial management, as it allows businesses to make data-driven decisions to achieve their financial goals.

## Analyzing budget vs. actuals: Favorable vs. unfavorable variance

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Another useful tool for analyzing financial results is budget comparison. This involves comparing the actual results to the budgeted results for a given period to identify any differences. By comparing the budget to actual figures, businesses can gain a more comprehensive understanding of their financial performance and identify areas where they may need to adjust their budgets in the future.

When analyzing the variance between actual and budgeted results, you can classify the variances into two categories: favorable and unfavorable. Favorable variances occur when the actual results exceed the budgeted results. For example, if a business budgeted \$10,000 for sales in a month but achieved \$12,000 in actual sales, then there is a favorable variance of \$2,000 or 20%. This means that the business is performing better than expected.

Unfavorable variances occur when the actual results are below the budgeted results. For example, if a business budgeted \$10,000 for expenses in a month but spent \$12,000 in actual expenses, then there is an unfavorable variance of \$2,000 or 20%. This means that the business is not performing as well as expected.

## What types of variances in a budget vs. actual report can you analyze?

There are several types of variances that you can analyze in an actual vs budget report, such as sales, expenses, profit, and cash flow. By analyzing these variances, you can identify areas where your business is performing well and where it needs improvement.

For example, if you notice that your sales are consistently higher than budgeted, then you may want to consider increasing your marketing efforts or expanding your product line. Conversely, if you notice that your expenses are consistently higher than budgeted, then you may want to look for ways to reduce costs, such as negotiating better supplier prices or optimizing your staffing levels.

## In conclusion

Budget vs. actual analysis is a valuable tool for any business that wants to stay on top of its financial performance. By comparing your actual results to your budgeted or planned results, you can identify areas where you are performing well and where you need to improve.

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