What the number shows
Each line of a budget, such as sales, wages or advertising, is set beside the actual figure from your books for the same period. The difference is the variance. Many owners and accountants call a result that improves profit favourable and one that reduces it unfavourable. Because a revenue line and an expense line move in opposite directions, check the convention being used before comparing reports.
The comparison is only as good as the books behind it. If transactions are unreconciled or posted late, the variance may reflect bookkeeping delay rather than business performance. Reviewing after a month-end close, once records are up to date, gives a more reliable picture.
An illustrative example
Suppose a small business budgeted $2,000 for supplies in a month and the books show $2,600. The variance is $600 over budget. That tells you where to look, not what happened. The extra cost may come from a bulk purchase that will last three months, a supplier price increase, or a bill recorded twice. The numbers are illustrative only.
Each cause leads to a different response. A timing difference may correct itself next month. A price increase may justify changing your selling prices or budget. A duplicate entry is a correction in the books. Asking what drove the difference matters more than the size of the difference.
Common mistakes
A frequent error is treating every variance as a problem. Small differences on minor lines are normal, and chasing each one wastes time. Many people set a threshold, either a dollar amount or a percentage, so that attention goes to the items that matter most.
Another is comparing a cash-based budget with accrual-based statements, or the reverse, which creates differences that are only a matter of method. Budgets are also estimates. If the same line misses by a wide margin month after month, the budget may need a more realistic assumption rather than tighter spending.
What to discuss with your accountant
Ask which variances reflect timing and which are lasting. Ask whether your budget and your reports use the same basis, and where a threshold for review should sit. If you borrow or report to a lender, ask how they expect the comparison to be presented.
Bring your budget file and the month-end reports. BDC notes that once you have a budget, you compare actual results with it each month, which is a practical rhythm for most small businesses. See our entries on financial projections and cash flow for the planning side, and our guide to building an annual business budget.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.