Imagine working for a company that didn’t keep track of its spending. It might start off fun, but the story would probably end with you and most (if not all) of the employees looking for another job after the company went under.

We all know keeping track of spending is critical to the survival of any business. Setting parameters across departments for spending ensures everyone has visibility and understands their role and responsibility in managing company finances. This is precisely why organizations use budgeting reports.

The budgeting report helps financial advisors see how the company is actually spending its money throughout each budgeting period and see where adjustments or cuts may be needed. Let’s take a closer look at budget reports and the basics of creating them.

What are budgeting reports?

Budget reports compare a company’s budget to its actual spend in a given period, which may be a month, quarter, or year. These reports should be considered part of the budgeting process, because they clearly show how a company is managing its money. It holds departments responsible for following their given budget, but also shows the finance department where money may need to be reallocated.

For example, if a company is consistently spending more on marketing than is budgeted but less on internal events, some money may be reallocated from events to marketing.

The budgeting report may be confused with forecasting reports. Unlike a forecast report, the budgeting report doesn’t predict variables or try to forecast different scenarios. You can think of them as the company’s financial goals. The financial advisors set spending and earning goals and then compare the actual results from other financial statements to determine if goals were met.

How to Create a Budgeting Report

Creating a budgeting report is relatively straightforward compared to other financial reports, but it does require time and planning.

1 - Create a budget

The first step is to create a budget to measure your results. You can work from financial statements from previous periods and talk to various department heads to set spending parameters. Ask department heads about any expected expenses from training, events, capital investments, operational investments, or other expenses.

2 - Distribute and discuss the budget

After you’ve created your budget, you’ll need to distribute it across the organization and be prepared for discussions. Distributing the budget ensures that everyone can be held accountable for how their actual spending compares to the goals set.

Financial advisors sometimes find that there is confusion about the budget. One team may assume that a certain line item falls under another team’s budget, leading to miscalculations. It’s helpful to include a description of each line item to remove any confusion when looking back on documentation or sharing your report with stakeholders.

Giving a platform for open discussion helps each department understand that any budget increase for their team will have to come from elsewhere and encourages teamwork. A great way to do this is to lean on a data-management platform like Causal, where collaboration and sharing tools are built into the systems.

3 - Compare actual results from financial statements

The most important part of creating a budgeting report is comparing actual spend to the budget. This is when you can confirm if cash was managed effectively. This enables you to identify cash surpluses or shortages and even uncover financial issues you may not have noticed otherwise.

This is also when financial advisors should try to uncover reasons for variances. Was the budget for a certain area too low to begin with, or did the team overspend? Is a line item under budget because someone is late turning in receipts? This process can be tedious and requires some digging to get to the bottom of any mysteries. Sure it’s tedious, but it’s also worthwhile because it means your next budget will be more accurate.

4 - Write a summary

Next, create a written summary of key findings. This is valuable for executives who may not have time to read the full report but are interested in the findings nonetheless. Highlight areas where spending was higher or lower than expected and outline a plan for improvement.

5 - Discuss and adjust

In addition to a written summary, it’s helpful to have an open discussion about the results. This should not be about shaming department heads who went over budget, but about uncovering how resources can be reallocated if needed. Come prepared with suggestions. Remember, you’re the expert and the leader on this subject and everyone will look to you for guidance, especially if there is conflict between departments and budget managers.

Analyzing and Interpreting a Budgeting Report

Interpreting a budgeting report requires both analytical and creative thinking. It’s important to assess the results objectively with an analytical approach to uncover any line items that may be a miscalculation or deeper issue.

It’s also important to be creative and think outside the box to put the results in context. For example, maybe marketing spend was much lower than expected this year due to event cancellations because of the pandemic. From there, you can decide if the marketing department should get a higher budget next year to make up for this year, or if those funds should be reallocated to cover an area that went over budget.

You may also have to find resolutions if there are consistent issues with sticking to the budget. For example, you may recommend switching to switch to less flexible budget allocation methods such as expense cards with lower limits or allotting pre-approved checks as expenses arise. People may grumble, but sometimes it’s up to financial advisors to be the parents of the organization.

Consider what the results of the budgeting report mean for the business at large and how you can add value. For example, if one spending category was under budget, perhaps that money can be used to invest in an improvement that will increase efficiency or otherwise benefit the business. Insights like this are why financial advisors are so important to the overall health of a company.

Getting budgets in order

The budgeting report is an important tool for financial advisors to make recommendations and manage expenses for an organization. Working across departments is a great way to make the budget as accurate as possible, prevent disputes, and uncover any issues that do arise if budget and spending don’t align.

Having the right tools is a big help to create clear visibility into the budget, but also keeps the organization aligned. Check out Causal’s free tools for data importing and data management that helps keep everyone on the same page (and under budget).

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