Setting a client's budget and reporting against it
How a firm builds a client's budget per account and period in Achekam, compares it with the ledger, uses committed spend and explains the variances.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Most small business owners have a budget in their heads. They know roughly what they expect to sell, roughly what the wage bill is, and that the vehicle needs replacing next year. What they rarely have is that budget written down by month and by account, so that when the management accounts arrive they can see at a glance whether the business is on track or drifting.
A firm that keeps a client's books is well placed to provide that. It already has the chart of accounts, the history and the monthly actuals. This article covers how to build the budget with the owner, how Achekam holds it, and how to turn the comparison into advice rather than a page of numbers.
Building the budget with the owner
Start with a meeting, not a spreadsheet. The owner knows things the ledger does not: a price increase planned for July, a new contract starting in the second quarter, a staff member going on leave. Ask about each major line in turn, and write down the assumption behind each figure.
Separate costs that follow activity from costs that do not. Rent, insurance and most salaries stay the same whatever the sales; materials, delivery costs and commissions move with them. That split lets the firm say later whether a cost overran because the business was busier or because the cost itself got out of hand. ACCA's article All about budgeting – part 1 explains flexible budgeting and how fixed and variable costs are used to budget across different levels of activity, and is a helpful primer for a staff member preparing their first client budget.
Last year's actuals are a starting point, not the budget. Adjust them for what the owner expects to be different, and challenge assumptions that look optimistic. A budget the business cannot meet is worse than none, because the owner learns to ignore it.
Budget per account and per period
In Achekam, a business can set a budget per account and per period and compare it with the actual figures from its ledger. When the firm keeps the client's books, it enters the budget there, against the same accounts the bookkeeping uses.
Phase the budget by month to reflect the business's real pattern. A retailer's December, a school's term months, a tour operator's season and a construction company's quiet January all belong in the phasing. An annual figure divided evenly by twelve produces meaningless monthly variances.
Budget at the level the owner thinks in. A budget for every one of eighty expense accounts is hard to set and harder to discuss; budgeting the main accounts carefully and smaller ones roughly gives better conversations.
Committed spend from purchase orders
For clients that buy through purchase orders in Achekam, budgets gain another column. Approved purchase orders count as committed spend against budgets per expense account and period, and the screen shows budget, spent, committed and available for each line. Lines that are over-committed are flagged, without blocking the purchase.
This answers a question the ledger alone cannot: how much of this month's budget has already been promised to suppliers but not yet invoiced? For a client with a maintenance budget and a stream of orders to contractors, the committed view shows trouble weeks before the invoices arrive. Because over-commitment is flagged rather than blocked, someone still has to watch the flags and talk to whoever approved the orders.
Explaining variances
The comparison itself is straightforward. Management accounts in Achekam show an income statement for a chosen period beside the period before and a balance sheet at period end, both added up from the client's own journals, while the budget itself is compared with the actual figures from the same ledger. The trial balance can be taken for a period or at a date, which is useful when checking a particular account's movement.
One detail catches people out. The year-to-date preset in management accounts starts on 1 January, not on the client's own financial year start. For a client with a February or June year end, choose the period by hand when reporting year-to-date against budget.
The firm's value is in the explanation. For each material variance, say:
- What happened. Sales were below budget for the quarter.
- Why. One large customer delayed an order to next quarter.
- Whether it will reverse. The order is confirmed for next month.
- What, if anything, the owner should do. Hold back the planned stock purchase until the order ships.
Keep the commentary short and in plain language. A few well-explained variances are worth more than every line annotated. How this fits into the wider monthly pack is covered in monthly management accounts for a client.
Revising during the year
Budgets go out of date. A lost customer, a new branch or a sharp change in costs can make the original figures useless for steering the business. Revise when the assumptions have changed, not when the variances are merely uncomfortable.
When you revise, keep the original. Export the budget comparison before changing it, so that at year end the owner can see both how the year compared with the plan they started with and how it compared with the revised view. Note the reason for each revision in the client file.
A worked example in words: a guesthouse budgets high occupancy for the holiday months and low occupancy in winter. In the first winter month, food costs run well over budget while occupancy is on target. The variance commentary traces it to a supplier price increase, not to volume. The owner renegotiates with the supplier, and the firm revises the food cost budget for the remaining months, keeping the original figures in the file for comparison.
Where the CFO work begins
Budgets and variance commentary are often the first step towards a deeper advisory relationship. What the firm can offer beyond that, and the limits of Achekam's CFO Office today, are set out in fractional CFO work and what the CFO Office shows. The next practical step is simpler: pick one bookkeeping client whose owner keeps asking how the business is doing, and build a budget with them before their next year starts.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
