Budget versus actual tracker

A budget is a promise. Variance tells you if you kept it.

Most small businesses make a budget in January and look at it again in December, if they find it. By then the information is useless. The value of a budget is in the comparison: what did we plan, what really happened, and why do they differ? Done every month, that comparison is the cheapest management tool there is. It shows problems while they are small, it rewards good decisions and it makes the next budget better. This workbook gives you the structure and does the sums.

Three sheets that work together

The Budget sheet lists three lines of income and ten lines of expenses, with a column for each month. Enter what you plan to earn and spend. The Actual sheet has exactly the same layout: enter what really happened, month by month, as the year goes on. The Variance sheet compares them. You choose how many months to report on, and for each line it shows the budget to date, the actual to date, the variance in shillings and as a percentage, and a verdict.

• For income, variance is actual minus budget: earning more than planned is positive.
• For expenses, variance is budget minus actual: spending less than planned is positive.
• Positive is always good for you, and negative is always a warning.

The verdict column

Each line is marked On or better than plan, Slightly off plan if the shortfall is within five per cent of the budget, or OFF PLAN, highlighted in red, if it is more. At the bottom, total income, total expenses and the surplus are compared in the same way. A line that is slightly off needs a note. A line that is OFF PLAN needs an explanation and a decision.

How to build a budget you can use

1. Start from last year's actual figures. They are better than guesses.
2. Adjust for what you know will change: price rises, a new employee, a rent increase, a new product.
3. Be realistic about income. It is safer to budget slightly low on sales and slightly high on costs.
4. Include the costs that arrive irregularly: insurance, licences, tax payments, repairs and annual subscriptions.
5. Include your tax payments in the Taxes and levies line, using our filing calendar and tax payments log in this collection to remember them.
6. Keep the number of lines small enough to maintain every month.

The monthly review

Within a week of the month-end, enter the actual figures and open the Variance sheet. Start with the surplus at the bottom: are you ahead or behind for the year to date? Then look at the largest variances, favourable and adverse. For each, ask what caused it, whether it will continue and what you will do. Write the answers in a notebook or in the margin of the workbook. If a variance is a timing difference, such as an annual insurance bill paid early, it will reverse. If it is a trend, such as the cost of fuel creeping up, your budget for the remaining months needs changing.

Changing the budget during the year

There is no shame in revising a budget. Keep the original, so that you can see how far you moved, and update the remaining months for what you now know. A budget that is adjusted for reality becomes a forecast, which is exactly what a bank or an investor wants to see. Our 12-month cash flow forecast in this collection turns the same plan into a month-by-month bank balance.

Linking it to the rest of your records

The actual figures come from your accounting records: the cashbook, the profit and loss statement, the expense tracker and the payroll workbook. If a total here does not match those records, find the difference before you rely on the variances. Keep each year's workbook with your accounts, because it shows how the numbers were planned as well as how they turned out, and tax records should be kept for at least five years.

This workbook is a planning and control tool and not financial or tax advice. The example figures are illustrations. For tax payments and deadlines, see the Kenya Revenue Authority and our 30 June deadline guide, and speak to an accountant for anything beyond a simple budget.

Related guides, calculators and templates

• Guide: How to build a 12-month cash flow forecast for a small business
• Guide: How to price your products and services: markup, margin and break-even
• Guide: Turnover tax for small businesses in Kenya: rate, limits and when to use it
• Another template: 12-month cash flow forecast
• Another template: Break-even and pricing calculator
• Another template: Inventory and stock tracker with reorder alerts

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