Expense management 5 min read

Modern budgeting reports: how to improve budget control

Patrick Whatman

Smart need companies need good money management. Particularly when times are tough and markets are struggling, you can’t leave cash to chance. 

Every founder and finance leader knows this. But where to begin? 

One key weapon in the arsenal: budgeting reports. These help you analyze actual spending against what was intended, spot errors, and identify ways to take back control

This article gives you a breakdown of the “what” and “why” behind budgeting reports, an action plan to get budgets under control, and our number one recommendation if you struggle to control spending. 

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What are budgeting reports?

Budgeting reports (or simply “budget reports”) let companies compare their actual spending with what was budgeted for. You plan your budget for a given period, then at the end of that period your budgeting report shows you how much you actually spent

A typical budget report has two key columns: 

  • Planned spending budgeted for a given period
  • Actual spending for that same period

This essentially tells you how well your teams manage cash in light of their expectations. 

The budgeting report will look very similar to your income statement. You’ll set out sales and revenues, followed by various expenses, and then your net operating income. 

Here’s a very simple example from sampletemplates.com

Budgeting vs forecasting

It’s worth spelling out clearly the differences between budgets and forecasts. They’re close cousins, in a way, but the purpose and goals for each are slightly different. 

Forecasting lets a business attempt to predict the amount of revenue the business will achieve over a fixed period. Looking at all foreseeable variables, you try to give a clear prognosis for the company’s profits and losses. 

Most companies build forecasts for the quarter and year ahead, and it’s standard practice for startups in particular to build three-year forecasts. These longer-term analyses are the growth map the business runs on. 

Budgets, on the other hand, show the amount your business units intend to spend for a given period. Again, this is typically done on a quarterly and yearly basis, and will be informed directly by your forecasts.

So if you forecast that your business will generate $10 million in monthly recurring revenue (MRR) this quarter, this revenue may fuel your project budgets for the same period. 

And because forecasts can (and usually do) change quickly, your ability to control and report on budgets is critical. 

Why budget reports are important

Modern businesses rely on good spend control to survive. Particularly with certain industries struggling, your ability to monitor where company money goes in real time is crucial

Of course, creating the budgets themselves is a huge part of this exercise. Simply by setting clear expectations and parameters for your teams, you make it more likely they spend responsibly and effectively. Which for finance teams is a big win. 

But once budgets are set, you can’t simply assume that they’re respected. And these reports are an opportunity to reflect on how money was deployed over each set period

Benefits of budgeting reports

Aside from the fact that reporting almost always brings new analyses and chances to improve, budget reports have a few distinct advantages. They let you: 

  • Monitor performance. Obviously, the main role of almost any report is to see how the company performs against expectations. Which is also true of budget reports. 
  • Manage cash effectively. With a closer eye on spending, you’ll be able to deploy funds better and identify areas of “leaky” spend.
  • Hold team leaders accountable. They have their hands on the budgets, so they also need to ensure that spending is as expected. On the positive side, these reports also highlight the great work they’ve done to remain on track.
  • Identify budget surpluses. These of course mean that you can deploy funds elsewhere. But you might also find that certain teams need help with spending. If you’ve allocated a certain amount to your marketing budget, for example, then failing to spend that amount will probably mean slower growth. So a surplus budget isn’t always a good thing.
  • Spot issues. Particularly when budget reports are shared among teams, you’ll likely discover problem areas you didn’t know existed. You may also find that specific teams understood their budgets differently, or that certain players assumed that key items belonged on another team’s budget. 
  • Plan for the future. What better way to create your next budget than to learn from the previous one(s)?

In reality, you already know the value of great budget reports. Leaders can only make smart decisions with good data, and these reports are one such example. 

Modern budgeting controls

The obvious question at this point is, “so what next?” Once you’re in the habit of building budget reports for the business, how do you actually use them for good? 

Budget control in five steps

HB Publications provides a very straightforward budgeting control process. And the good news is that, if you’ve come this far, you’ve already done the first three steps. 

Here’s what they recommend:

1. Establish your current position

In other words, figure out how much you’ve spent so far. This is the third column of that budget report template we saw above. 

If you have good spend management tools in place, this will be easy. They tell you exactly what was spent against each budget, in real time. Otherwise, accounting software like Xero works with expense management tools to the same effect. 

Look at your records and find out what has been spent against each line item. And add that to your report.

2. Compare this with your budget

Naturally, you want to know if the amount you’ve spent is within budget, way over, or even way under. As mentioned above, both over and under can be causes for concern, and will certainly require action in some form. 

In this step, you really just need to identify the original budget figures, because we’ll start doing math in the next step.

3. Calculate the difference

These calculations aren’t terribly challenging, and Excel or Google Sheets will easily do them for you. Simply subtract the amount spent from the amount budgeted for

If there’s a surplus, the result will be a positive number. If there’s a deficit, it’ll be negative.

4. Find reasons for variance(s)

Here’s where the detective work comes in. If there’s a surplus or deficit, you really need to know why. Either you over/under-budgeted, or perhaps individuals aren’t actually paying close attention to the budgets set out. 

There are also potentially benign reasons for discrepancies - simple errors or delays in gathering information. These aren’t good, but they may be easier to fix than systemic issues. 

This stage can be long and challenging, and may rely more on your soft skills as a leader and communicator than a finance expert. You’ll have to talk to team leads and find answers to questions, without coming off as overly negative or unpleasant.

It’s difficult and time-consuming, but it’s also where you add serious value to your business. And it leads nicely into the final step. 

5. Take action

Clearly, the only thing left to do is make changes. That could include: 

  • Increasing or decreasing budgets
  • Freezing spending altogether until the rules have been set
  • Updating your spending policy
  • Requiring finance approval before spending large amounts
  • Working closer with team leads when budgets are set
  • Creating new processes to track budgets in real time

Your next steps will of course depend on the circumstances and your particular situation. But you simply can’t expect to increase budgetary controls by chance. You need to get to work. 

And of course, the action we recommend most is…

Improve budgeting with spend management

One reason budgeting can be tricky is the range of different ways that teams pay for things. You have credit cards, invoices, and expense claims - all of which impact your budget. But because they’re managed differently, it can be easy for team leaders to lose track of what’s been spent

You’re asking these managers to be rigorous Excel users, which many of them simply won’t be. 

Instead, choose spending methods with the budgets built in. For example, with employee expense cards, you can allocate a set amount of spending for a specific purpose. If the employee wants to go over, they’ll need approval. Which means that the budget can’t simply be exceeded by chance. 

These also let you track subscription payments easily - another major cause of “phantom” payments.

And of course, when it’s time to build your next budgeting report, you have all the data you need sitting there in the platform, formatted and ready to go. What was once a tricky task is just a few clicks away. Simple.

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Patrick Whatman

Patrick Whatman is a content marketer and writer. He lives in Paris, loves music, and writes his own brand of cultural criticism for fun. Tweet him @mrwhatman where he mainly talks digital marketing, American sports and New Zealand trivia.