Creating a budget is an essential task for any well-run business. It gives executives and management teams an estimate of what the company income and expenses will be for an upcoming quarter or year. The word “estimate” is the key term in that description. Budgets don’t portray the actual results—think of them as an “educated guess.”
In other words, the final amounts of income and expenses at the end of the period will differ from what is projected in the budget. That difference is called a “variance,” and it’s important for getting a fuller picture of the financial well-being of a company. Variances can be positive or negative, indicating where budget projections exceed or fall short of the actual numbers.
What is a variance report?
A variance report is a written document, usually presented as an Excel spreadsheet or Powerpoint presentation, that shows the deviations between the projected income and expenses listed on the budget and the actual numbers reported at the end of the period. The variance report lists the difference for each line item as both a number and a percentage.
With accurate reporting, a variance report is a valuable spend management tool that can be used to adjust cash outflows and provide realistic revenue expectations to company executives and business owners. It gives them the ability to make informed decisions on how to cut costs, increase operating income, and create a more accurate budget going forward.
Variance reporting should be done regularly as part of the overall budgeting process. The exact cadence is dependent upon the type of business. Long waiting periods between variance reports can lead to wide disparities on budget line items. Companies that forego this process often find that their existing budgets are inaccurate after several reporting periods have gone by—this can cause a cascading effect across the business.
How to create a variance report
The easiest way to create a variance report is with an Excel spreadsheet. You can use the “data analysis” plugin if you prefer or opt to build the report from scratch. There are also Excel templates that might suit your company needs. If you choose to custom build in Excel, begin by creating a spreadsheet with these five column headers.