Budget Reporting: The Ultimate Guide

Budget reporting is the comparison, analysis, and documentation of the current company's financial performance against the projected budget.

June 19, 2023


Money management is a significant challenge for companies with large expenditures. Especially, during times of economic volatility and constant change. 

All in all, optimizing your budget implies: 

  • Identifying inaccuracies
  • Eliminating unnecessary expenses
  • Discovering savings
  • Creating value

And to do so, finance leaders must have a clear understanding of their company's departmental spending. 

As a CFO, you're probably well-acquainted with these principles. But what is the best way to put them into practice? There's a key resource that won't let you down: Budget reporting.

In today’s post, we’ll explain what budget reporting is and why it matters for large companies. Plus, we’ll cover:

  • How to make a budget report in 5 simple steps.
  • 3 essential best practices for creating successful budgeting reports.

Let’s get started.

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What is Budget Reporting?

Generally speaking, budget reporting (or "budget reports") is the comparison, analysis, and documentation of the current business’ financial performance against the projected budget. 

A budget report is created yearly, and it's monitored and reported on a monthly and quarterly basis. It typically includes the analysis of two pieces of information:

  • The budgeted expenditures planned for a particular period 
  • The actual spending for that period 

Organizations use these reports to: 

  • Monitor resource allocation
  • Identify areas for improvement
  • Measure budget performance 

Ultimately, it's about how efficiently your team manages the company's income and expenditures based on the projected budget.

Why Budget Reports Matter

As you already know, controlling spending is especially crucial for large companies. Nevertheless, budgeting could be challenging for all parties involved. In fact, 43% of CFOs surveyed by McKinsey & Company indicated they need to improve budgeting and financial reporting. 

Part of this can be attributed to:

  • Challenges in budget alignment. Each department has different needs and priorities, thus aligning budgets is no easy feat. 
  • Unnecessary manual tasks. The team performs unnecessary manual tasks instead of automating their processes, leaving opportunities for human error.
  • Data silos. Each department uses its own financial forecasting information, resulting in data silos. 
  • Poor financial insights. Miscommunication between departments could lead to poor financial insights, negatively impacting the entire organization.

The challenges above suggest that budgeting practices need to be supported by detailed documentation and smooth communication across departments.

By keeping clear and comprehensive budgeting reports you will: 

  • Take greater control - Take a closer look at your company's expense performance compared to its budgetary expectations, and act accordingly. 
  • Set more profitable & effective goals - Analyze expenses to identify irrelevant investments and explore new promising opportunities.
  • Reinforce teams' leadership & productivity - Enhance team leaders' understanding of their department's projected expenses, while they keep the focus on the sector’s growth. 
  • Allocate funds wisely - Detect budget misuse and facilitate communication among team members to develop appropriate funds allocations. 
  • Plan for the future - Set fresh goals that are better aligned with your ongoing business plan and future growth strategy.

Budget reports enable you to establish precise expectations and guidelines for analyzing and enhancing your current financial spending. Want to learn how to create them? Let's explore the next section.

How to Make a Budget Report: A 5-Step Guide

If you're having trouble determining whether your company's budget is appropriately allocated, a budget report may be just what you need. Nonetheless, it's essential to follow certain steps to avoid missing critical data.

In this section, we'll walk you through the process of creating a budget report, step-by-step. You should:

  1. Evaluate your current spending
  2. Compare your current spending with your estimated budget 
  3. Analyze variances and understand their causes
  4. Write a summary of your findings and share it with your colleagues 
  5. Taking action based on the reporting insights 

Let's explore each one, shall we?

1. Evaluate Your Current Spending

Begin by assessing your current expenditures: Do you think the budgeted cash flow was effectively managed so far? At this stage, it is important to determine how much revenue was spent on each line item, including: 

  • Fixed expenses - What are your company's regular and constant costs? For example, insurance, workspace rental, taxes, and utilities.
  • Variable expenses - How many variable costs does your company incur as the result of its services? For instance, production costs, raw materials, and sales commissions.
  • Unique expenses - What are the extraordinary costs incurred by the company during this period? For example, equipment transfers.

You should include these expenses in your reporting. Some of those costs may include:

  • Departmental expenses
  • Depreciation expenses
  • Education and training expenses
  • Software subscriptions 
  • Contextual & unforeseen expenses

Departmental Expenses 

Departmental expenses refer to specific costs incurred by departments within the company. Since each department has its own priorities and goals, budget allocation will vary from one another. 

However, it’s important to analyze and track their specific budget allocations. Thus, companies can identify areas for improvement and allocate resources efficiently to comply with the organization’s goals.

Depreciation Expenses 

This category covers assets' value declines over time, such as: 

As these assets age, wear out, or become outdated, their value decreases, and eventually, they may need to be replaced. 

With depreciation expenses, companies can account for this decline and allocate funds to new assets or upgrades. And so, keep operations efficient and smooth.

Education and Training Expenses 

This category refers to employee development costs, such as investments in: 

  • Training programs
  • Workshops
  • Seminars
  • Certifications 

These expenses aim to enhance employees' skills, improve job performance, and promote career growth within the company.

Software subscriptions

Software subscriptions are monthly costs associated with a variety of tools used across the company.  Typically, each department will have its own SaaS stack. Some tools examples include:

Contextual & Unforeseen Expenses  

These expenses cover resources that the company suddenly needs, such as a specific tool or equipment. They can arise from unexpected situations, emergencies, or industry changes, requiring the company to adapt quickly.

Some examples include: 

  • Urgent repairs
  • Replacement of damaged equipment
  • Technology acquisition to meet new market demands

Ultimately, each expense category implies specific considerations. And although this can make budget reporting quite complex, you don’t need to do it manually. Accounting SaaS tools can help you streamline your expense management tools. We’ll discuss them later in this post, in our best practices section.

2. Compare Your Current Spend with your Estimated Budget  

You already have the insights you need. Now, it’s time to compare your current expenditures to the budget you set at the beginning of the fiscal year. This comparison is called "variance". 

Basically, you need to take a look at both figures to determine whether there was an underspend or overspend.

For example:

Month Budget Heading Budget To Date Actual To Date Variance
May Hiring How do we expect to spend on hiring? How much did we spend on hiring? Do we have a positive or negative variance between our estimated budget and what we have spent?

Let’s say your company sets a spending level of $20,000 and spends $35,000 in the third month, you’ll have $15,000 of surplus. This excess of expenses shows a negative budget variance.

All in all, if actual and projected spending doesn't differ much, budgetary control should be simple to do. 

3. Understand the Reasons Behind Variances 

After you’ve identified all the variances between actual spending and the estimated budget, it’s time to understand why they happened. 

Variances can be caused by a variety of factors, including:

  • Errors in the accounting system, including wrong income statements and balance sheets.
  • Inadequate recognition of certain accounting fluctuations.
  • An incorrectly prepared budget, with inaccurate efforts set.
  • Unaddressed internal restructurings, like increased SaaS expenses for specific needs.

Ask yourself:

  • How much has each department's manager spent in accordance with its budget?
  • How much did each department spend above or below its estimated budget? What impact did this have on its performance? Did it bring ROI? 
  • At first glance, would it be necessary to take specific actions to improve?
  • Should you create a revenue growth strategy?

4. Write a Summary of Your Findings & Share it

Now, write down the key findings from the previous step. This is important for:

  • Providing relevant stakeholders with a clear understanding of the current spending situation. 
  • Focusing on areas where expenses were higher or lower than expected.
  • Proposing improvements.

Moreover, we suggest you divide the budget reporting by teams. This helps the board understand the business's statement. Use 1-2 slides per department and always compare numbers to previous months. 

Besides writing the summary, we recommend you:

  • Develop a plan to guide department leadership.
  • Be open to debate across departments. This isn’t meant to discuss why they have overspent or underspent, but rather to receive suggestions for making adjustments.
  • Think of budget reports as a constant analysis task. It’s worth reviewing budget reporting on a monthly or quarterly basis to ensure the estimate remains on track.

5. Take Action According to the Reporting Insights

Budget reports are useful to identify variances, but also to act upon them. Hopefully, the variances will not be too significant, and you won't need to take any major steps. However, sometimes actual income and expense figures don't really match the budget. And there may be a variety of reasons for it, it could be a spike in demand for a service, a restructuring of the software stack spending that teams use, or higher recruitment costs.

But, what actions could you take to combat it? Of course, that depends on the type of variance we are discussing. Nevertheless, here are a few common ones:

  • Transfer budget money from one department to another that needs it more urgently
  • Make use of contingency funds
  • Redefine the objectives and criteria for funding distribution
  • Reduce or suspend certain company resources

Our Top 3 Best Practices for Creating Successful Budget Reports

Now you know the step-by-step for budget reporting. In this section, we’ll share some best practices for improving and strengthening companies’ budget reports.

We advise you to:

  • Encourage leadership collaboration & set guidelines
  • Implement SaaS accounting tools 
  • Not overlook software spending 

Let’s dive in.

Encourage Leadership Collaboration & Set Guidelines

Collaborate with stakeholders to address budget deviations, understand their budget usage and profitability, and highlight the importance of budget performance. Consider discussing:

  • The importance of adhering 100% to a budget
  • The strong connection between compliance & achieving the company’s goals
  • Clear guidelines around budget compliance

Additionally, you should consider:

  • Developing a clear expense policy for the involved parties
  • Improving communication & collaboration between department leaders
  • Fostering a company culture around budgeting compliance
  • Presenting clear data and & relevant KPIs to measure progress, and make your points clear (e.g: monthly recurring revenue, profit margin, and budget variance)

After all, budgeting overspending or underspending cannot be fixed just by addressing accountability. A transparent expense overview and in-depth collaborative analysis can lead to effective and scalable results.

Thus, you'll create a strong foundation for effective budget reporting. And better still, this will drive your company toward long-term success and growth.

Automate the Process with Accounting Tools

With accounting management tools, you’ll be able to:

  • Monitor all financial indicators in a single platform
  • Analyze and produce insights
  • Tracking real-time spending
  • Create comprehensive and easy-to-understand budget reports

SaaS accounting tools are key for simplifying and automating data collection workflows and preventing human error. Thus, the finance team can hone their skills in strategic analysis and planning instead of manual, time-consuming tasks.

Aside from that, real-time spending updates can help you to:

  • Gather more accurate financial information
  • Forecast the impact of potential spending decisions
  • Plan budgets based on your business drivers.

Simply put, they allow you to set up budgets that support particular goals, such as increasing conversion rates of your company's service.

Curious to learn more? Check out our article comparing Xero vs. Sage vs. Quickbooks to see which accounting tool fits better for your company.

Don’t Overlook Software Spending

Many companies rely on software as a way to minimize expenses and boost efficiency across departments. And it’s not hard to see why, SaaS solutions are greatly effective for: 

  • Automating repetitive tasks
  • Optimizing resource allocation
  • Streamlining workflows
  • Enhancing communication and collaboration among team members

However, SaaS solutions don't always minimize costs. They can easily pile up if they’re not properly monitored. In fact, they can even lead to shadow IT.

Shadow IT involves unauthorized SaaS tools, and cloud applications used within a company without IT department or stakeholder approval. Typically, employees create shadow IT with good intentions, seeking to enhance their productivity by testing new tools. Nevertheless, introducing these tools without proper authorization or support could pose significant risks in terms of budget and security.

Thus, software spending is growing in many companies, becoming the second largest expenditure. This makes it essential for companies to monitor their subscriptions and evaluate their software needs carefully.

This is why we suggest implementing a SaaS management tool to manage your subscription spending. That way, you can perform regular audits of SaaS subscriptions and usage to optimize software investments and detect hidden costs. 

Streamline Your Budget Reports with a SaaS Management Solution 

As you can see, budget reporting is a collaborative process that requires thorough analysis to detect (and prevent) expense mismanagement. And, if found, you should adjust the budget to align with the business goals more effectively.

Luckily, a SaaS management solution can relieve you of the burden of keeping track of software costs. And that's where Cledara comes in.

Cledara is a SaaS management platform that lets you:

  • Get a centralized view of all your subscriptions
  • Manage access, payments, revocations, and subscription updates
  • Connect to expense management tools like Xero or Quickbooks
  • Automate invoice capture and reconciliation
  • Manage access and seats easily
  • Set up separate virtual cards for each software subscription
  • Set an expense limit for each virtual card
  • And more

Curious? Schedule a Cledara demo today!

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