What are steps in budgetary control process?
Businesses especially rely on good money management practices to bring some method to the madness of handling money. Ensuring that the money is allocated promptly and is utilized for the very purpose it was saved up for is, in no way, an easy feat. Every CEO, CFO, and finance team knows that the way to manage money is to put it in specific budgets for every department, project, or event.
So if everybody knows it, why do only a few companies follow it?
Because they forget to make budget reports. Without budget reports, you lack proper insights into how your budgets performed over a specific period. Without these insights, you are unable to create optimized budgets to ensure that they are utilized appropriately. When budgets are unable to make the difference you thought they would, you become less and less tempted to keep creating them, until eventually, you give up on the idea altogether, and back to the chaos we go.
Efficient budget reporting helps you pinpoint the key areas of improvement that led to a mismatch between the result of the budget and what it was initially intended for, and put a rein of better budgetary control over it.
What is budget report?
Budget reports help businesses compare their ultimate spending versus what was earlier budgeted for. You plan your budget for a specific period, then at the end of it, your financial budgeting report shows you exactly how much you stayed on track.
A typical budget report has two columns one side has the planned allocation of company funds for the particular period, and the other side has the actual value that was spent in the same period. This can help us examine specific areas where the spending levels are high and what measures can be taken to minimize them.
Example of budget reports
You can create budget reports according to your needs, however, feel free to follow these templates and customize however you wish.
1. Simple budget reports
These are mainly prepared when creating first-time reports, or if the budget allocated for this particular project is not that high.
2. Detailed budget reports
These budget reports are commonly prepared for more important projects and departmental activities, such as quarterly or annual income and expenses reports. These reports mention the projected value and the actual value, giving one a clearer view of how to manage money more effectively.
Difference between financial report and budget report
For most companies, financial reports and budget reports are interchangeably used, however, the two terms serve very different purposes.
Budget report
Budget reports represent a company’s numerous budgets with different periods. The goal of budget reports is to pinpoint how much funds are allocated to each department or division and how well do these departments have utilized these said funds over time. It is a document that only reports the incoming and outgoing cash flow and therefore is not an ideal marker for your business’s financial health. You cannot ascertain a company’s performance on budgets alone - they are merely indicators of how your company spends the money available.
Financial report
Financial reports are an in-depth analysis of how well or poorly your business is performing. This report takes into account all the budgets listed in a budget report along with a detailed list of your company’s assets and liabilities, to calculate its net worth. It is primarily written for investors and shareholders to reveal the financial health of the company. Many investors also gauge a company’s profitability based on its financial reports. While budgets are an indicator of how funds are spent in different areas within a company, financial reports are extensive documents, indicating the performance of a company based on its capital utilization, net profit, and overall credibility.
Have complete control over your budgets and expenses
Types of budget reports
One size does not fit all and that stands true for budget reports as well. As we saw previously, budget analysis reports vary not only by the level of length, complexity, and description but also by the kind of budgetary control we are aiming towards.
Supplementary budget report
Supplementary budget reports are sanctioned during or after the end of a fiscal year to authorize expenditures that were not included in the initial budget. These kinds of expenditures are one-off and largely unforeseen due to their nature. These do not imply policy changes. For example, war and natural disasters.
Capital budget report
Capital expenditure reports are an analytical tool, often used by CFOs and finance teams to determine how much capital they plan to allocate for asset purchases for the next year. This kind of budget analysis report can be made for any kind of business with any budget. You can describe every asset purchase by its quantity, expected month of purchase, and amount sorted into relevant categories and departments.
Static budget report
Static budget reports revolve around those kinds of expenses that do not change with variance in business activities. They usually refer to a fixed value in terms of sales, revenue, marketing, etc. These kinds of budgets help allocate funds for functions that remain unaffected by changes in revenue. Cloud storage can be considered a static budget as its subscription stays unchangeable in case of revenue fluctuations.
Recurring budget report
Just like the name suggests, these kinds of budget reports are commonly prepared for a monthly, quarterly, or annual time frame and are needed to keep the daily operations of the business running smoothly. Such recurring budget reports include employee remuneration, use of goods and services, etc. These reports have to be updated regularly by analyzing the monthly expenses sheet to facilitate faster and more accurate projections for the upcoming budget period.
Importance of creating budget report
Identify weak areas
Talking about departmental overspending, you might not even realize how much some departments might be spending until you examine the budget reports. Only by looking over their quarterly or monthly expense sheet and budget reports can give you a fair sense of which areas need improvement in terms of cost-reduction and even restructuring.
Highlight strengths of business
Just like budget reports highlight a company’s problem areas, they also shine a light on the best-performing facets of your business. Budget reports are a great assessment tool for your management, and can accurately spot which team leaders are using their budget more cost-effectively than others. This can help you to award budget surpluses and applaud the great work your team has done!
Deploy funds better
While most businesses experience slower growth owing to departments going over the budgets, others might experience it due to budget mismanagement i.e. the funds allocated are not used to the fullest leading to budget surplus and slower progress. In these instances, budget reports are a very handy tool. It can help you recognize areas of surpluses and adjust budgets accordingly so that company’s resources are utilized efficiently.
Better business performance
Just like a machine runs better when its internal cogs are well-oiled, similarly successful businesses also rely on receiving regular budget reports to avoid roadblocks, improve efficiency, and reduce company expenses. All your budget reports get streamlined into creating a financial report that reflects on your performance. When the revenue is high and inter-departmental expenses are low, the productivity of the company is at an all-time high.
More accurate and predictable forecasting
Reflecting on your past helps you clarify your future. The same holds for businesses. Budget reporting lets you see the difference between the budget you made versus the actual spending. At the end of the period, having a budget report in hand gives you valuable insights into any departmental overspending or wastage that might be contributing to the factor. This further assists you in making accurate forecasts into your company spending for the next budget period.
How to prepare budget report?
List the budget items
First and foremost, it is important to list out all the budget items and their corresponding value. If your department or project has experienced an unprecedented new expense, mark it accordingly.
List the spending for the last quarter or the last fiscal year
Create a detailed spending report for the last quarter or the last fiscal year. You can mark these expenses by department or category. You can further create an additional appendix for a monthly expense sheet breakdown for each department or category. In case an issue is raised regarding specific spending, you won’t have to scramble for monthly reports.
Record the amount
Now that you have your initial intended amount and the actual spending, it’s time to record the difference. Subtract the actual amount spent from the budgeted amount. This gives you your over or under amount. You can further show this amount in percentage by dividing the actual amount by the budgeted amount and then multiplying the ratio by 100.
Write your description
Write a description for any budget variance in the report. However, if the value of fixed costs remains unchanged or the expense is self-explanatory, you can leave the description blank. Be sure to mention the reason for the budget variance. Pay special attention to those items that are way over or under budget. Address these issues and mention a summary of proposed solutions for them.
Highlight over or under budget areas
Items that have gone over or under budget need to be discussed urgently, therefore be sure to highlight them in your next budget analysis report to prioritize them in the meeting.
Finalizing budget report
The summary of a budget report is usually mentioned at the beginning of the document, but it is to be written last by the designated budget reporter. You can mention the steps you have taken to optimize the budget along with any items or targets you have missed in the previous that you shall carry on to the next one. Additionally, you can also share any achievements, such as gaining high visibility through marketing whilst remaining under budget, etc. This section can highlight how your expenses have contributed directly to the growth factor of the organization.
Budgetary control process
Once making budget reports becomes second nature in your company, it’s time to take the next step budget management and control. Try these steps to ensure that you hit your budget without going overboard:
Compare actuals against budgets
Now that you’ve got the actual spend value, you’ll naturally be curious about whether you’re right on the budget, way over or way under it. For that, you need to look at your original budget figures and compare the current values with them to take out the difference. This difference will make you aware of the variances in the values of each item.
Figure out variances
Figuring out variances isn’t that difficult. You can do it easily on excel sheets or it can be instantly done with an automated accounting system integrated with spend management tool. If you have a budget surplus (stayed under budget), the difference will be positive. If you have a budget deficit (stayed over budget), the difference will be negative.
Identify current situation
To know what funds to allocate for the next budget, you must know where you stand fiscally today. For that, you need to assess the amount you have spent till now on the items mentioned in the budget list. Doing it manually is a big task, however, using a comprehensive spend management tool does the calculation for you in real-time. Make a note of it all in your report.
Identify causes of differences
Now that you know which areas were over and under budget, you need to know the reason why. The budgets aren’t properly set or employees are not utilizing the budget the way it was intended. In both these instances, you’ll have to employ the power of effective communication more than the cold rational truth of numbers. As a business owner, you need to implore your management to understand the cause of these differences and suggest rectifications without coming across as overly judgemental or outright disrespectful.
Taking steps to get control
Once you’ve gathered the necessary information needed to make changes, it is time to get to work and enforce these changes. According to your company’s budget reports and overall management, these steps will be customized to suit your needs. These steps could look like increasing or decreasing the budget values, pausing the budget until the actions taken are in full effect, updating and streamlining your spending policy, being hands-on with the department heads when creating budgets, and ensuring that the budget guidelines are transparent and understood by all before spending.
How can Volopay help you in budgetary control process?
Budgets are difficult to make without proper insights, and even more difficult to keep track of when the system is outdated and not compatible with the pace at which businesses function. From allocating funds to specific projects or items to transferring those funds to the respective employee, ensuring 100% transparency while supervising various spend management functions such as corporate credit cards, invoices, employee reimbursements further affect the efficiency of a budget. That’s why it is vital to choose an all-in-one platform with in-built budgets.
Allocating department budget
Volopay comes with an innovative and customized in-built department feature that allows admins to manage company spending in a more granular fashion on department level or based on different events or projects. You can instantly create either an ad-hoc budget for those one-off types of payments or a recurring budget that needs to get replenished after every specific cycle.
You can instantly allot funds to any physical or virtual card and set the spending limit simultaneously. If an employee wishes to go over the spending limit, our software notifies you in real-time, giving the rein of budgetary control back into your hands.
Block and freeze cards
You’ll never lose track of your subscriptions with our special recurring budgets. Simply put in the value of your subscription and the repayment cycle, and it’ll get automated in a heartbeat!
What’s more, if you feel like there is an instance of potential fraud, you can block or freeze a specific card or even the whole budget, until you get the all-clear. And when the time to create your budget report comes along, all the necessary information is available on a unified platform, accessible from anywhere and seamlessly integrated with your accounting software.
FAQs
A budget report must include the name of the certain department/project/event, the initial budget, the actual value of expenses incurred, the difference between the initial value and the real value, and comments on optimizing the future budget in consideration of this budget report.
A budget report can be prepared on a monthly, quarterly, and yearly basis according to the purpose the budget is created for.
A budget performance report is the comparison of the planned budget with the actual performance for a particular department, project, or event. You can compare present account transactions with the budget values of the same period.
Yes! Volopay offers a complete department analysis report for each departmental budget you have created. You can view this on your dashboard or export it to download and present during meetings.
Expenses that are excluded while creating a budget report are depreciation, obsolete inventory charges, lawsuit settlements, losses from the sale of assets, etc.
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