Whether you are looking at your predicted sales or your budgeted expenses, it’s important to look beyond the difference. That’s because simply noting the differences won’t solve any financial problems or help you uncover potential profit increases.
A true analysis of the reasons behind the variance between your budgeted and actual figures looks beyond the numbers to explore what’s really happening inside your business.
For example – The cost of raw materials
When you prepared your last budget, you probably made assumptions about the cost of
purchasing raw materials. However, throughout the year, the actual price of these materials usually
increases. But which ones? Are there cheaper alternatives? Could you do things differently?
Should you increase your prices and if so, by how much?
When you take a deep dive into why your actual results are different to your budgeted figures,
these questions will be answered.
Here’s another example – The cost of staff or labour (payroll)
This is often a big expense for businesses but when it comes to paying employees or contractors,
there are lots of ways your budgeted figures could be wrong.
- You may have engaged a new staff member who demanded higher wages than you anticipated
- Minimum wage rates have increased which could be impacting your payroll costs
- You may have paid overtime at various stages throughout the year and that wasn’t included in your initial staffing budget
When you understand what your numbers are telling you, you can then determine the best actions to take.
One last example – The time it costs to produce your goods or services (efficiency)
Some projects take longer to complete than expected. At other times, the efficiency of your business may be impacted by:
- Machinery breakdowns
- Staff shortages due to sick leave, annual leave or resignation
- Production quality or staff performance issues
Whatever the reason or reasons, these issues will impact your profit margins and the output of
products or services your business can produce.
It all begins with your budget
The more underlying detail we can put into your budget, the deeper we can dive into what’s really happening inside your business and why. From there, we can begin to make modifications to enhance performance and profitability. The team at CFO@Call can assist you with all aspects of your budget preparation as well as analysis of what’s happening – both the good and the bad.
Contact us to learn more about the ways we can help you improve the profitability and efficiency of your business.
