Money management is a significant challenge for companies with large expenditures, especially during times of economic volatility and constant change. 

Optimizing your budget includes: 

• Identifying inaccuracies
• Eliminating unnecessary expenses
• Discovering savings
• Creating value

To efficiently manage and optimize budgets, finance leaders must have a clear understanding of their company's departmental spending. 

As a CFO, you're probably well-acquainted with these principles. But what’s the best way to put them into practice? There's a key resource that won't let you down: budget reporting.

In this article, we explain what budget reporting is and why it matters for large companies. Plus, we cover how to make a budget report in five simple steps and three essential best practices for creating successful budget reports. 

Let’s get started.

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What is Budget Reporting?

Budget reporting (or "budget reports") is the comparison, analysis, and documentation of your business’s financial performance against your projected budget. 

Most organizations create budget reports yearly and monitor them on a monthly and quarterly basis. A budget report typically includes analyzing two pieces of information:

1. The budgeted expenditures planned for a particular period 
2. The actual spending for that period 

Organizations use these reports to: 

• Monitor resource allocation
• Identify areas for improvement
• Measure budget performance 

Ultimately, budget reporting reveals how your team manages the company's income and expenditures based on a projected budget.

Why Budget Reports Matter

Controlling spending is especially crucial for large companies. Nevertheless, budgeting can be challenging for all parties involved—especially in the current, fluctuating economy, in which 72% of CFOs prioritize building flexible budgets.

Part of this can be attributed to:

• Challenges in budget alignment: Each department has different needs and priorities, making it difficult to align budgets for different teams. ‍
• Unnecessary manual tasks: The team performs unnecessary manual tasks instead of automating their processes, leaving opportunities for human error.‍
• Data silos: Each department uses its own financial forecasting information, resulting in data silos.‍
• Poor financial insights: Miscommunication between departments could lead to poor financial insights, negatively impacting the entire organization.

The challenges above suggest that budgeting practices need to be supported by detailed documentation and clear communication across departments.

By keeping comprehensive budgeting reports you will: 

• Take greater control: Take a closer look at your company's expense performance compared to its budgetary expectations, and act accordingly.
• Set more profitable and effective goals: Analyze expenses to identify irrelevant investments and explore new promising opportunities.
• Reinforce teams' leadership and productivity: Enhance team leaders' understanding of their departments’ projected expenses, while they keep the focus on the sector’s growth.
• Allocate funds wisely: Detect budget misuse and facilitate communication among team members to develop appropriate funds allocations.
• Plan for the future: Set fresh goals that are better aligned with your ongoing business plan and future growth strategy.

Budget reports enable you to establish precise expectations and guidelines for analyzing and enhancing your current financial spending. Want to learn how to create them? Let's explore the next section.

What Are The Types of Budget Reporting?

To help you gain a better understanding of how to use budget reports for your business, here are the top eight types, their advantages, and drawbacks.

1. Traditional/ incremental budgeting Traditional budgeting uses your previous budgets as a starting point and then adds increments to reflect important developments. These increments typically include cost changes, inflation, and growth. It’s a simple, straightforward budgeting method that makes it easy for stakeholders to track incremental shifts. The downside? It’s easy to drag on inefficiencies and outdated allocations from previous years if not reviewed critically. 

2. Zero-based budgeting  Zero-based budgeting requires each department to justify every expense from scratch. Starting from zero at each accounting period, teams have the opportunity to explain why they should receive funding and how their requests align with your business’s strategic objectives. It helps reveal inefficiencies and encourages discipline, but it can be time-consuming and resource-intensive. 

3. Activity-based budgeting Rather than simply listing expenditures, activity-based budgeting focuses on specific activities that drive expenses. By showing how expenditures are allocated to tasks, processes, and products, companies can gain deeper insight into inefficiencies and highlight areas for improvement. However, activity-based budgeting gets complicated fast and often requires specialized expertise.

4. Value proposition budgeting  Value proposition budgeting connects each item to a strategic objective or return on investment. It labels and justifies each item by the value it delivers to the company, whether it’s revenue growth, better brand recognition, or other quantifiable value. This budget reporting method lets companies home in on aligning spending with long-term objectives. At the same time, it can be difficult to accurately assign value to each item.

5. Rolling forecasts Rolling forecasts let you update your budget continuously, whether monthly or quarterly. Instead of relying on a static plan, companies adjust projections based on fresh data such as sales revenue, market trends, and operational needs. With real-time adaptability, companies can agilely pivot their spending priorities. There is a downside, however: rolling forecasts require constant data collection, expertise, and an established workflow for them to be actionable and valuable in the long term. 

6. Project-based budgeting Project-based budgeting helps track costs and revenue for each company initiative separately. Instead of grouping budgets under departments, it maps out where company money goes across project lifecycles. Adopting project-based budgeting accurately tracks initiatives and improves accountability, but has the risk of creating data silos.

7. Participatory (bottom-up budgeting) Bottom-up budgeting takes information from different levels of your business. Frontline employees, team leads, and department managers contribute expense estimation and revenue forecasts. The resulting budget report reflects ground-level insights and encourages budget ownership for employees. The challenge comes with coherently consolidating data—it can be labor-intensive. Plus, employees might hand in inflated requests if you don’t establish guidelines and checks.

8. Flexibility budgeting  Flexibility budgeting adjusts expenses according to activity levels or changes in revenue, such as production volume and sales numbers. Instead of providing a snapshot, flexibility budgeting lets companies monitor operational changes, giving organizations real-time visibility and control. At the same time, this method demands constant data collection and proactive calculations to be useful.

What’s Included in a Budget Report?

Before we explain how to make your own budget report, let’s take a look at the essential components. For a budget report to be useful and actionable, you need to include:

• Estimated revenue: This includes your company’s expected revenue for the fiscal year, sales forecasts, and costs of goods sold for your company’s services.
• Fixed costs: Also called G&A (general and administrative costs) expenses, this refers to money your business pays on a regular basis, such as payroll, mortgage, and utilities.
• Variable costs: This refers to expenses that change depending on your company’s output or activity level. These can include fluctuating production and labor costs.
• One-time spends: Includes urgent purchases that happen rarely, such as charges for fixing a broken device, short-term consultation, and out-of-house business services.
• Cash flow: This includes your company’s anticipated inflows and outflows from the year before and the time ahead.

Net income: This is the total profit your business earns after subtracting estimated costs from your total revenue.

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How to Make a Budget Report: A 5-Step Guide

If you're having trouble determining whether your company's budget is appropriately allocated, a budget report may be just what you need. But it's essential to follow certain steps to avoid missing critical data.

In this section, we'll walk you through the process of creating a budget report, step-by-step. In summary, you’ll:

1. Evaluate your current spending
2. Compare your current spending with your estimated budget 
3. Analyze variances and understand their causes
4. Write and share a summary of your findings
5. Take action based on the reporting insights 

Let's explore each step:

1. Evaluate Your Current Spending

Begin by assessing your current expenditures: Has the budgeted cash flow been effectively managed so far? At this stage, it’s important to determine how much revenue was spent on each line item, including: 

• Fixed expenses: What are your company's regular and constant costs? For example, insurance, workspace rental, taxes, and utilities.
• Variable expenses: How many variable costs does your company incur as the result of its services? For instance, production costs, raw materials, and sales commissions.
• Unique expenses: What are the extraordinary costs incurred by the company during this period? For example, equipment transfers.

You should include these expenses in your reporting. Some of those costs may include:

• Departmental expenses: Departmental expenses refer to specific costs incurred by departments within the company. Since each department has its own priorities and goals, budget allocation will vary. 
• Depreciation expenses: This category covers asset value declines over time, such as equipment, infrastructure, and software tools. As these assets age, wear out, or become outdated, their value decreases, and eventually, they may need to be replaced. 
• Education and training expenses: This category refers to employee development costs, such as investments in training programs, workshops, seminars, and certifications. These expenses aim to enhance and promote career growth within the company.
• Software subscriptions: Software subscriptions are monthly costs associated with a variety of tools used across the company. Typically, each department will have its own SaaS tech stack. Some tools examples include a CRM‍, email marketing tools‍, and AI tools‍.
• Contextual and unforeseen expenses: These expenses cover resources the company suddenly needs, such as a specific tool or equipment. They can arise from unexpected situations, emergencies, or industry changes, requiring the company to adapt quickly.
  

Ultimately, each expense category implies specific considerations. Although this can make budget reporting quite complex, you don’t need to do it manually—accounting SaaS tools can help you streamline your expense management tools. We’ll discuss these tools later, in the best practices section of this page. 👇

2. Compare Your Current Spend with your Estimated Budget 

You have the insights you need. Now, it’s time to compare your current expenditures to the budget you set at the beginning of the fiscal year. This comparison is called "variance". 

Basically, you need to look at both figures to determine whether there was an underspend or overspend.

For example:

Let’s say your company sets a spending level of $20,000 and spends $35,000 in the third month; you’ll have a $15,000 surplus. This excess of expenses shows a negative budget variance.

All in all, if actual and projected spending doesn't differ much, budgetary control should be simple to do. 

3. Understand the Reasons Behind Variances 

After you’ve identified all the variances between actual spending and the estimated budget, it’s time to understand why they happened. 

Variances can be caused by a variety of factors, including:

• Errors in the accounting system, including wrong income statements and balance sheets.
• Inadequate recognition of certain accounting fluctuations.
• An incorrectly prepared budget, with inaccurate efforts set.
• Unaddressed internal restructurings, like increased SaaS expenses for specific needs.

Ask yourself:

• How much has each department's manager spent in accordance with their budget?
• How much did each department spend above or below its estimated budget? What impact did this have on performance? Did it bring ROI? 
• At first glance, would it be necessary to take specific actions to improve?
• Should you create a revenue growth strategy?

4. Write and Share a Summary of Your Findings

Now, record the key findings from the previous step. This is important for:

• Providing relevant stakeholders with a clear understanding of the current spending situation.
• Focusing on areas where expenses were higher or lower than expected.
• Proposing improvements.

We suggest you divide budget reporting by teams. This helps the board understand the business's statement. Use 1–2 slides per department, and always compare numbers to previous months. 

Besides writing the summary, we recommend you:

• Develop a plan to guide department leadership.
• Be open to debate across departments. This isn’t meant to discuss why they have overspent or underspent, but rather to receive suggestions for making adjustments.
• Think of budget reports as a constant analysis task. It’s worth reviewing budget reporting on a monthly or quarterly basis to ensure the estimate remains on track.

5. Take Action According to the Reporting Insights

Budget reports are useful for identifying and acting on variances. Hopefully, the variances will not be too significant, and you won't need to take any major steps. However, sometimes income and expense figures don't match the budget, and there may be a variety of reasons for it—there could have been a spike in demand for a service, a restructuring of the software stack spending that teams use, or higher recruitment costs.

But what actions could you take to combat variances? Of course, that depends on the type of variance we’re discussing. Here are a few common solutions:

• Transfer budget money from one department to another that needs it more urgently.
• Make use of contingency funds.
• Redefine the objectives and criteria for funding distribution.
• Reduce or suspend certain company resources.

Our Top 3 Best Practices for Creating Successful Budget Reports

Now you know the step-by-step for budget reporting, we’ll share some best practices for improving and strengthening your company’s budget reports, including:

• Encouraging leadership collaboration and setting guidelines
• Managing software spending 
• Implementing SaaS accounting tools 

Let’s dive in.

Encourage Leadership Collaboration and Set Guidelines

Collaborate with stakeholders to address budget deviations, understand budget usage and profitability, and highlight the importance of budget performance. Present clear data and relevant KPIs to measure progress and make your points clear (e.g., monthly recurring revenue, profit margin, and budget variance). Consider discussing:

• The importance of adhering 100% to a budget.
• The strong connection between compliance and achieving the company’s goals.
• Clear guidelines around budget compliance.
• Developing a clear expense policy for the involved parties.
• Improving communication and collaboration between department leaders.
• Fostering a company culture around budgeting compliance.

Budget overspending or underspending can’t be fixed just by addressing accountability—a transparent expense overview and in-depth collaborative analysis can help too, to lead to effective and scalable results.

By encouraging collaboration and setting guidelines, you'll create a strong foundation for effective budget reporting and drive your company toward long-term success and growth.

Don’t Overlook Software Spending

Many companies rely on software to minimize expenses and boost efficiency across departments. And it’s not hard to see why—SaaS solutions are effective for: 

• Automating repetitive tasks
• Optimizing resource allocation
• Streamlining workflows
• Enhancing communication and collaboration among team members

But SaaS solutions don't always minimize costs, and can easily pile up if they’re not properly monitored. In fact, they can even lead to shadow IT:

Shadow IT involves unauthorized SaaS tools and cloud applications used within a company without IT department or stakeholder approval. Typically, employees create shadow IT with good intentions, seeking to enhance their productivity by testing new tools. But introducing these tools without proper authorization or support could pose significant risks in terms of budget and security.

Software spending is growing in many companies, so it’s essential to monitor your SaaS subscriptions and evaluate your software needs carefully.

This is why we suggest implementing a SaaS management tool to manage your subscription spending. That way, you can perform regular audits of SaaS subscriptions and usage to optimize software investments and detect hidden costs. 

Automate the Process with Accounting Tools

SaaS accounting tools are key for simplifying and automating data collection workflows and preventing human error. They allow your finance team to hone their skills in strategic analysis and planning instead of spending time on manual, time-consuming tasks.

With accounting management tools, you can:

• Monitor all financial indicators in a single platform
• Analyze and produce insights
• Tracking real-time spending
• Create comprehensive and easy-to-understand budget reports
• Gather more accurate financial information
• Forecast the impact of potential spending decisions
• Plan budgets based on your business drivers.

Simply put, SaaS accounting tools allow you to set up budgets that support particular goals, such as increasing the conversion rates of your company's service.

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The software management tool that automates your expenses.

5 SaaS Budgeting Tools to Streamline Accounting

While you can certainly create your budget report manually, the process is often labor-intensive. If you’re in a time crunch, your best alternative is to use a specialized SaaS budgeting tool. 

We’ve scoured the web for the five best options on the market. Here they are, complete with their key features, pros, and cons. 

1. Xero

Xero is an accounting and budgeting platform designed to help simplify lengthy financial tasks, including budget reporting. It offers real-time insights into cash flow and integrates with multiple third-party apps to help streamline the budgeting process.

Key features

• Multi-budget creation and budget-versus-actual reporting 
• Real-time and bank feed reconciliation 
• Wide range of integrations for advanced capabilities

Plans and Pricing

Xero’s plans are divided into:

1. Starter, which starts at $29/month and is ideal for sole traders, the self-employed, and new businesses
2. Standard, starting at $46/month, great for small businesses and startups
3. Premium, starting at $69/month, perfect for established businesses and scaleups

2. Quickbooks

Quickbooks is considered a comprehensive accounting system and comes complete with multiple processes like payroll, bookkeeping, budgeting, and user-friendly invoicing. It’s a favorite among small businesses that need a clear, straightforward budgeting and financial reporting tool. 

Key features

• Creates budgets by fiscal year 
• Automates expense tracking and categorization 
• Comes with tax preparation tools

Plans and Pricing

Quickbooks offers four plans:

1. Simple Start, $17/month
2. Essentials, $28/month
3. Plus, $39/month
4. Advanced, $72/month

3. Sage

‍

Sage is a financial platform that caters to a wide range of business sizes. It includes robust financial management features and budgeting capabilities with reporting modules that can handle multi-departmental and multi-entity budgeting. 

Key features

• Allows for comprehensive budget set-up across departments and entities 
• Real-time variance analysis and in-depth reporting 
• Customizable templates for budgeting

Plans and Pricing

Sage pricing includes: 

1. Essentials (free)
2. Standard, $45/month
3. Premium, $120/month

Curious to learn more? Check out our article comparing Xero vs. Sage vs. Quickbooks to see which accounting tool fits better for your company.

4. Freshbooks

Freshbooks is a financial process and budget reporting tool that focuses on simplicity and ease of use. It’s particularly popular with small businesses because of its expense-and-revenue-against-budget tracking capabilities. 

Key features

• Simple expense and revenue categorization for budget snapshots 
• Summaries of planned vs actual income 
• Automated invoicing capabilities

Plans and Pricing

Freshbooks plans include:

• Lite: $7.60/month
• Plus: $13.20/month
• Premium: $24.00/month
• Select: Custom pricing

5. Budgyt

Budgyt is a specialized tool designed to simplify planning, budgeting, and reporting for finance teams. Two of its main capabilities include multi-scenario and comprehensive variance analysis that help replace spreadsheet workflows.  

Key features

• Includes “what-if” budget scenarios for budget planning 
• Centralized variance reporting with real-time updates 
• Role-based user access for departmental collaboration

Plans and Pricing

Budgyt’s plans include an Easy, Plus, and Pro plan. However, they don’t publicly disclose pricing. 

Streamline Your Budget Reports with a SaaS Management Solution 

Budget reporting is a collaborative process that requires thorough analysis to detect and prevent expense mismanagement, including costs associated with:

• Departmental expenses
• Depreciation expenses 
• Education and training expenses
• Software subscriptions
• Contextual and unforeseen expenses 

Luckily, there’s a SaaS management solution to relieve you of the burden of manually keeping track of software costs: Cledara.

Cledara is a SaaS management platform that makes it easy to:

• Get a centralized view of all software subscriptions
• Manage access, payments, revocations, and subscription updates
• Connect to expense management tools like Xero or Quickbooks
• Automate invoice capture and reconciliation
• Manage access and seats easily
• Set up separate virtual cards for each software subscription
• Set an expense limit for each virtual card
• Use detailed summaries, projections, and application-level breakdowns to understand your team’s budget and year-to-date spending

Curious? Schedule a Cledara demo today!