Businesses, both large and small, need to keep track of where their funds are going. Organizing your finances is done using a budget. There is another tool that can be used to make sure the current budget you are using meets the needs of your organization. This is done using Budget Analysis.
What is Budget Analysis
Budget analysis is a tool that helps you to understand how money in your organization is being managed and spent. It shows whether this is meeting the goals of the groups within your organization. Budget analysis is used by large and small businesses, charities, and governments. It helps evaluate any budget proposals to make sure funds are being spent in a productive manner, which further helps by recommending decreases and increases in certain areas of the budget where needed.
How to Make a Budget Analysis?
Step 1 – Revenue
Your first step is to look at all of your present income sources. Most budget analyses’ are done on a monthly or quarterly basis, so add up your income as appropriate. Make sure you are only calculating your revenue and not your profit. Proft is what is left once expenses have been deducted.
You should go back over the past 12 months to help gather your information so that you can catch monthly changes and any seasonal patterns. This will help you to plan your budget for the months ahead.
Step 2 – Fixed Costs
Next, you will be subtracting your fixed costs. A fixed cost is anything that reoccurs and is necessary to operate your organization. These costs can occur yearly, monthly, weekly, and daily. Some examples of fixed costs are:
- Asset depreciation
- Debt repayments
When you have your total fixed costs figure, subtract this from your income.
Step 3 – Variable Expenses
A variable expense is something that changes depending on how much or often you use a service, such as utilities. There are considered necessary for running your business. There are also other variable expenses that are desired but not considered a necessity, such as:
- Marketing costs
- Old equipment replacement
- Salary for the business owner
- Education/Professional development
When you have slower months, it will be the variable expenses that you adjust.
Step 4 – Unexpected Costs
It’s important to have a contingency plan and some backup cash for those unexpected bills that can crop up, usually at the worst times. Make sure you budget surplus cash for those unexpected costs.
Step 5 – Profit and Loss
Your next step is to create a profit and loss statement. You do this by subtracting your expenses from your income to see if you have cash leftover (profit) or a lack of funds (loss).
Step 6 – Looking Ahead
Your last step is to projects what will occur in your organization is the future, which can be guesswork for newer businesses. This is where you use all of the data from the past to create a budget for the future.
Free Templates & Examples
Budget Analysis Worksheet Template 01
Quarterly Budget Analysis Template 02
Budget Variance Analysis Template 03
Business Budget Analysis Template 04
Personal Budget Analysis Template 05
Monthly Budget Variance Analysis Template 06
Family Budget Analysis Template 07
Budget Cost Analysis Template 08
Monthly Household Budget Analysis Template 09
Why doing Budget Analysis is important
Your budget analysis is an important planning tool for any business. It allows your business to limit funds being spent in some areas while redirecting them to other areas that need it. This can change from month to month and ensures that you aren’t wasting resources that could be going to areas that need them.