The profit and loss budget is a summary of the expected revenues and expenses. It is usually prepared every year - although the period may be shorter or longer depending on what you use the budget for.
Information on income and expenses is compared with the operating plan for the budget period. Your accountant can help you prepare a budget, but you need to understand how the budget is developed.
You also need to know how to track the results of your business compared to the prepared budget - to track whether your business is achieving its goals and whether it remains profitable.
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Budget Preparation Steps for Profit and Loss
Start by understanding your business goals and attracting key employees. This will ensure that your budget matches your goals, as well as the training and verification of the right people.
Document and complete the annual budget preparation process by including the following steps:
review the approved business transaction plan and record all actions required for the budget period
division of activities into existing and new for the new budget period
identify and document all assumptions made for the budget period
view the profit and loss statement for the previous year with a regular period - monthly, quarterly
prepare an income statement for the selected period using the financial reporting template below.
Financial Report Template (XLSX 296.44 KB)
Monitoring and managing your profit and loss budget
If an income statement is prepared monthly, your budget should be divided into several months for the budget period.
Regularly monitoring your budget for real results provides information on whether your business is on the right track to achieve the goals you were striving for when you first set your budget.
When actual results differ from budget
At the end of each month:
Compare actual results - from profit and loss statement - with budget results
record and analyze each variance - with an explanation
classify all options as “temporary” or “permanent” options;
The time difference is when the results of the assessment do not appear, but are still expected at some point in the future.
Constant rejection is where the expected event is not possible at all.
This information will help minimize future changes. You will be able to take new or more effective actions to ensure the achievement of strategic business goals.
