There are three core variance reporting options. The most common is actual-to-plan variance reporting, followed by year-over-year and rolling 13-month variance reporting.
All three are straightforward business tools for confirming that your hard work and sacrifice are worth the effort. Selecting the best variance report approach to use to assess the quality of your profits is a function of your sales and expense variability month-to-month?
To WIN in the game of business, you need both positive operating cash flows (see BusinessCPR™ Step 1) and healthy net profit (BusinessCPR™ Step 2) to remain a viable business. Both positive cash flow and profitability are achieved through thoughtful planning, disciplined work, and accurate plus timely reporting of the results. One of the easiest ways to know for sure if the results of your never-ending hard work and sacrifice are worth the effort is through variance reporting.
Since there are principally only two ways to increase sales—increase the volume (number of sales) or increase the value (price) of the sales. A minor variance-to-plan is to be expected; however, one should be mindful of trends. If trending below plan, you must boost sales revenue as needed, given how quickly money is lost anytime sales fail to cover expenses. You can only do this if you are doing variance reporting.
While minor COGS variances are expected, significant differences as a percentage of sales to plan indicate that your direct costs are not variable. This must be corrected, or you will have insufficient Gross Profit contribution to cover your overhead and leave a profit for you. Variance Reporting is the best way to see the changes in your COGS.
Overhead should mainly be equal to plan if all items are categorized correctly. The only exception would be months with planned variances, such as an extra pay period or when an insurance policy premium is paid over nine months to ensure a full year’s coverage. Again, Variance Reporting is how you know if you spend more on non-revenue-producing activities than you should.