budget-vs-actual

name

budget-vs-actual

description

Monthly and quarterly budget vs. actual variance analysis for businesses. Compare planned vs. realized revenue, expenses, and margins. Identify favorable/unfavorable variances, root-cause material variances (greater than 5% or greater than $X threshold), produce management commentary, and generate actionable reforecast recommendations. Outputs: variance table, waterfall narrative, and updated rolling forecast. Use when a CFO, controller, or analyst needs to close the books for a period, explain results to management or investors, or update the annual operating plan mid-year. NOT for: building budgets from scratch (use startup-financial-model), tax preparation, transactional bookkeeping, or real-time cash tracking.

Budget vs. Actual Variance Analysis Skill

Perform rigorous period-end budget vs. actual analysis. This skill guides Sam Ledger through pulling actuals, comparing against budget, calculating variances, identifying root causes, drafting management commentary, and producing a reforecast update.

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When to Use This Skill

Trigger phrases:

• "Run budget vs. actual for [month/quarter]"
• "Explain our variances this month"
• "Why did we miss/beat revenue?"
• "Prepare the management report for [period]"
• "Update the rolling forecast based on actuals"
• "Board needs BvA commentary"
• "What drove the EBITDA miss?"
• "Reforecast the rest of the year"

NOT for:

• Building the original budget — use startup-financial-model
• Tax filings or tax provision work — use compliance workflows
• Real-time bookkeeping or transaction categorization — use qbo-automation or expense-categorization
• Multi-entity consolidations with intercompany eliminations (requires dedicated consolidation tooling)
• Strategic planning or multi-year long-range planning (LRP)

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Core Concepts

Variance Types

Type	Formula	Meaning
Absolute Variance	Actual − Budget	Dollar difference
Percentage Variance	(Actual − Budget) / Budget × 100	Magnitude relative to budget
Favorable (F)	Revenue: Actual > Budget / Expense: Actual < Budget	Better than plan
Unfavorable (U)	Revenue: Actual < Budget / Expense: Actual > Budget	Worse than plan

Materiality Thresholds (Default — customize per engagement)

Revenue line items:    ≥ $5,000 or ≥ 5% of budgeted line → investigate
Expense line items:    ≥ $2,500 or ≥ 10% of budgeted line → investigate
Total EBITDA:          ≥ $10,000 or ≥ 5% of budgeted EBITDA → board commentary required
YTD cumulative:        Carry forward monthly variances; flag if YTD > full-year materiality

Variance Root Causes — Taxonomy

Revenue Variances:

• Volume variance: More/fewer units/customers than planned
• Price/rate variance: ASP or pricing differed from assumption
• Mix variance: Different product/segment mix than modeled
• Timing variance: Deal closed in wrong period (pulled forward or pushed out)
• New vs. existing: Over/under-performance in specific cohort

Expense Variances:

• Headcount timing: Hire later/earlier than budgeted
• Contractor/vendor: Over/under-spend vs. plan
• One-time items: Non-recurring expenses not in budget
• Volume-linked: COGS, sales commission scaled with revenue
• Pricing/inflation: Vendor price changes not modeled

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Step-by-Step Workflow

Step 1: Collect Inputs

Required:
□ Period (Month, Quarter, YTD)
□ Budget/forecast file (CSV, Sheets, or typed data)
□ Actuals file or QBO export (same period, same account mapping)
□ Chart of Accounts mapping (if budget and actuals use different labels)
□ Materiality threshold (use defaults if not specified)
□ Audience (internal management, board, investors)

Optional:
□ Prior period actuals (for trend context)
□ Prior year same period (for YoY context)
□ Existing narrative from last period

Step 2: Normalize Data

Map actuals to budget line items. Standard P&L mapping:

Budget Label          → QBO/Actuals Equivalent
-------------------------------------------------
Revenue               → Total Income
COGS                  → Cost of Goods Sold / Direct Costs
Gross Profit          → (calculated)
Sales & Marketing     → Advertising, Sales Commissions, Marketing Expenses
R&D / Engineering     → Contract Labor (tech), Software Tools
G&A                   → Payroll (admin), Legal, Accounting, Insurance
Total OpEx            → (sum of above)
EBITDA                → (Gross Profit − Total OpEx)

Step 3: Calculate Variances

For each line item:

# Variance calculation logic
for each line_item:
    absolute_var = actual - budget
    pct_var = (actual - budget) / abs(budget) * 100  # handle $0 budget edge case

    if is_revenue_line:
        favorable = actual > budget
    else:  # expense line
        favorable = actual < budget

    flag = abs(pct_var) >= threshold_pct or abs(absolute_var) >= threshold_dollar

Step 4: Build the Variance Table

Standard Output Format:

PERIOD: March 2026 | Budget vs. Actual

Line Item          | Budget    | Actual    | $ Var     | % Var  | F/U | Flag
-------------------|-----------|-----------|-----------|--------|-----|------
REVENUE            |           |           |           |        |     |
  Product Revenue  | $120,000  | $108,500  | ($11,500) | -9.6%  |  U  |  ⚠️
  Service Revenue  |  $30,000  |  $34,200  |  $4,200   | +14.0% |  F  |  ⚠️
  Total Revenue    | $150,000  | $142,700  |  ($7,300) | -4.9%  |  U  |
                   |           |           |           |        |     |
COGS               |  $45,000  |  $43,100  |  $1,900   | +4.2%  |  F  |
Gross Profit       | $105,000  |  $99,600  |  ($5,400) | -5.1%  |  U  |  ⚠️
Gross Margin %     |   70.0%   |   69.8%   |   -0.2pp  |        |     |
                   |           |           |           |        |     |
OPERATING EXPENSES |           |           |           |        |     |
  S&M              |  $25,000  |  $27,400  |  $2,400   | +9.6%  |  U  |  ⚠️
  R&D              |  $20,000  |  $18,500  | ($1,500)  | -7.5%  |  F  |
  G&A              |  $15,000  |  $16,200  |  $1,200   | +8.0%  |  U  |
  Total OpEx       |  $60,000  |  $62,100  |  $2,100   | +3.5%  |  U  |
                   |           |           |           |        |     |
EBITDA             |  $45,000  |  $37,500  |  ($7,500) | -16.7% |  U  |  🚨
EBITDA Margin      |   30.0%   |   26.3%   |   -3.7pp  |        |     |

Step 5: Root Cause Analysis

For each flagged variance, drill down:

Revenue miss example (Product Revenue -$11,500 / -9.6%):

Root cause analysis:
- Volume: Closed 8 deals vs. 10 budgeted = -2 deals
- Price: Avg deal size $13,563 vs. $12,000 budget → +$1,563 per deal (favorable mix)
- Net: 2 fewer deals × $12,000 ASP = -$24,000 volume miss
       + 8 deals × $1,563 price premium = +$12,500 price/mix offset
       = ($11,500) net as reported ✓

Assessment: Volume issue, not pricing. Sales pipeline slipped — 2 deals moved to April.

S&M overrun example ($2,400 / +9.6% unfavorable):

Root cause analysis:
- Planned: $15k paid ads + $10k salaries
- Actual: $15k paid ads + $10k salaries + $2,400 conference registration (unbudgeted)
- Classification: One-time / non-recurring — will not repeat next month
Assessment: Benign. Budget for next year; no action required.

Step 6: Management Commentary

Draft in this structure for each material variance:

[LINE ITEM] — [VARIANCE DIRECTION] by $[AMOUNT] ([PERCENT]%)

WHAT: [What the number shows in plain English]
WHY:  [Root cause — specific, not generic]
ACTION: [What we're doing about it, or why no action needed]
OUTLOOK: [Impact on full-year forecast]

Example commentary:

EBITDA — Unfavorable $7,500 (-16.7%)

WHAT: March EBITDA of $37,500 missed the $45,000 budget by $7,500, driven by a revenue shortfall partially offset by lower R&D spend.

WHY: Product revenue missed by $11,500 due to 2 enterprise deals slipping to April (pipeline confirmed, not lost). S&M ran $2,400 over budget on a one-time conference registration. R&D came in $1,500 favorable as one contractor engagement started late.

ACTION: The 2 slipped deals are expected to close in April (both in final contract stage). Conference registration expensed — not recurring. R&D contractor now onboarded; expect full burn starting April.

OUTLOOK: Revising Q2 forecast to front-load the 2 slipped deals. Full-year EBITDA forecast unchanged at $540,000.

Step 7: Update Rolling Forecast

After analyzing actuals, update the remainder of the year:

Reforecast logic:
1. Lock actuals for closed periods (do not re-budget history)
2. Roll forward: identify permanent vs. timing variances
   - Timing: shift to next period (deal slippage, late hire)
   - Permanent: adjust full-year assumption (market softness, new run rate)
3. Update full-year totals:
   - YTD actuals + remaining budget (adjusted)
   - Recalculate runway/cash if applicable
4. Flag changes from last forecast:
   - Revenue: +/- $X vs. prior forecast
   - EBITDA: +/- $X vs. prior forecast
   - Cash EOY: +/- $X vs. prior forecast

Reforecast summary table:

                   | Original  | Prior     | Current   | Change
                   | Budget    | Forecast  | Forecast  | (vs Prior)
-------------------|-----------|-----------|-----------|----------
Full-Year Revenue  | $1,800,000| $1,750,000| $1,762,000| +$12,000
Full-Year EBITDA   |  $540,000 |  $510,000 |  $512,500 |  +$2,500
Year-End Cash      |  $850,000 |  $790,000 |  $793,000 |  +$3,000

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Output Formats

1. Management Report (Narrative + Table)

Full commentary with variance table, root causes, and reforecast. For CFO/CEO/Board use.

2. Quick BvA Flash (1 Page)

Three sections only:

• Headline KPIs: Revenue, Gross Margin, EBITDA, Cash (actual vs budget, one line each)
• Top 3 variances with one-sentence explanations
• Reforecast change vs. prior

3. Structured JSON (for downstream processing)

{
  "period": "2026-03",
  "period_type": "month",
  "generated_at": "2026-04-02",
  "summary": {
    "total_revenue_budget": 150000,
    "total_revenue_actual": 142700,
    "total_revenue_variance_abs": -7300,
    "total_revenue_variance_pct": -4.87,
    "ebitda_budget": 45000,
    "ebitda_actual": 37500,
    "ebitda_variance_abs": -7500,
    "ebitda_variance_pct": -16.67
  },
  "line_items": [
    {
      "name": "Product Revenue",
       
       
       
       
       
       
       
       
    
  
   
     
     
     
     
  

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QBO Integration Workflow

When actuals come from QuickBooks Online (via qbo-automation):

1. Export: QBO → Reports → Profit & Loss (select period, compare to prior)
2. Or via API: GET /v3/company/{id}/reports/ProfitAndLoss?start_date=&end_date=&summarize_column_by=Month
3. Map QBO account names to budget line items using COA mapping table
4. Validate totals: QBO Revenue total must match sum of line items (catch mapping errors)
5. Feed into variance calculation above

Common QBO mapping pitfalls:

• QBO may break out subcategories that are lumped in budget → aggregate up
• Owner draws in QBO are not an expense → exclude from P&L analysis
• Payroll taxes may be in separate QBO accounts → roll up to loaded headcount cost

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Handling Common Edge Cases

Budget is $0 for a line item that has actuals

Never divide by zero. Instead:
  variance_pct = "N/A (no budget)"
  Flag as material if actual > materiality dollar threshold
  Commentary: "Unbudgeted spend of $X in [account]"

Prior period restatements

If actuals from a prior period changed:
  Flag the restatement explicitly
  Show: prior reported → restated → delta
  Update YTD accordingly
  Note audit trail in commentary

Multiple departments / cost centers

Run variance analysis at:
  1. Consolidated company level (always)
  2. Department level (if cost center tracking exists)
  Highlight cross-departmental offsets where applicable
  (e.g., R&D under-spend masked by G&A over-spend at total level)

Seasonal businesses

Include YoY comparison alongside BvA:
  March 2026 Actual vs. March 2026 Budget (primary)
  March 2026 Actual vs. March 2025 Actual (context)
  Flag: is variance seasonal (expected) or structural (new issue)?

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Metrics Glossary

Term	Definition
BvA	Budget vs. Actual
F	Favorable (better than plan)
U	Unfavorable (worse than plan)
pp	Percentage points (for margin comparisons)
YTD	Year-to-date (cumulative from Jan 1)
QTD	Quarter-to-date
MTD	Month-to-date
Reforecast	Updated projection for remainder of year, based on actuals to date
Flash	Quick preliminary BvA before full close (estimates OK)
Hard close	Final, locked actuals (no further adjustments)
Soft close	Preliminary actuals, subject to accruals and adjustments

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Integration Points

• qbo-automation — Pull actuals directly from QuickBooks Online
• startup-financial-model — Original budget/forecast data source
• kpi-alert-system — Trigger alerts when variance thresholds are breached
• report-generator — Format BvA output into board-ready PDF or deck
• financial-analysis-agent — Deep-dive trend analysis when root cause isn't obvious

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Example Intake Prompt

"March is closed. Budget had us at $150k revenue and $45k EBITDA. Actuals came in at $142k revenue and $37.5k EBITDA. Product was $11.5k short — two enterprise deals slipped. Service came in $4.2k over. S&M ran $2.4k over on a conference. R&D was $1.5k under — contractor started late. Draft the BvA table, root cause summary, and board commentary. Flag reforecast impact."

Sam will:

1. Build the variance table with F/U flags and materiality indicators
2. Write root-cause summaries for all flagged lines
3. Draft management commentary in WHAT/WHY/ACTION/OUTLOOK format
4. Produce the reforecast delta (timing vs. structural adjustments)
5. Output structured JSON if downstream processing is needed