To analyse your working budget comparison report and adjust your working budget, you will need to first:
- Create a working budget (in Quick Budgets; in Full Budgets)
- Set the working budget as the current budget
How to analyse the budget comparison report
To better understand your budget comparison report, you should compare the report to both the original budget (the one you created at the beginning of the farm year) as well as your working budget (the one you have updated with the actuals) and look at the variances.
When you compare these budgets, you should use the report type Full (alternative) in the Budget Comparison Report setup. Some common reasons for variances are:
- Timing of income and expenses is different than expected
- Price changes of inputs, such as fertilizer and chemicals
- Seasonal variations, such as changes in the yields of crops or weights of animals
Query all differences between the budgeted figures and the actual figures, look at all the possibilities and ask yourself the following questions to determine the root cause of the variances:
- Are the variances the same as those that showed up when compared to the original budget? Are the causes of the variances the same?
- Are the actuals for the income codes over budget (made more than budgeted)?
- Are the actuals for the income codes under budget (made less than budgeted)?
- Are the actuals for the expense codes over budget (spent more than budgeted)?
- Are the actuals for the expense codes under budget (spent less than budgeted)?
- Why did each of these situations happen?
- Is it because prices were better than expected? If so how does this affect the budget in the future?
- Or is it because the income has been shifted from another month in the past or future? What was the reason for this?
What may look good on paper (such as the budget exceeding actuals in income codes) can potentially have a negative effect on the budget in the future. The key is to understand the reasons why and adjust your budget accordingly.