How To Perform a Budget Analysis (With Definition and Tips)

Dave Lee

Updated November 7, 2022

Published January 29, 2021

Dave Lee is a passionate writer and editor with 15-plus years of experience writing for print and online media in the United States and United Kingdom. His topical expertise includes finance, technology, sports, social media, start-ups, security, piracy and government policy.

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A budget analysis refers to a thorough review of a company's budget. It allows you to maximize the benefits associated with an effective budget. If you're in a management or finance role, learning what a budget analysis is can help you understand where a company is making money, where money is exiting the business and how to maximize profits.

In this article, we explain what a budget analysis is, teach you how to conduct a budget analysis and provide a few tips for conducting an effective budget analysis.


What is a budget analysis?

A budget analysis is a strategy for evaluating a business' financial well-being. By scrutinizing the budget, you can monitor how much money the business is bringing in and compare that amount to how much money it's spending in a period of time. Performing a budget analysis can help business leaders make important decisions about the company's expenses and revenue streams. Many businesses perform budget analyses on a monthly basis, but you can analyze a company's budget quarterly, annually or on another schedule of your own choice.

Related: What Is a Budget?


How to conduct a budget analysis

If you want to perform a budget analysis for a company, here are some steps you can follow:


1. Choose your budgeting strategy

Before you can analyze a company's budget, it's important to first develop the budget itself. Different businesses often use different budgeting strategies, such as comprehensive, problem-solving and planning budgets. Consider researching various methods of budgeting and choose one that works best for the company's situation. You may wish to collaborate with colleagues to help decide which kind of budget to use.

Related: Budget: Definition and Types


2. Decide on a time frame

After you've chosen a budget type, think about the time frame you want to use for your budget analysis. Many budget analysis cycles happen on a monthly basis, but you might choose another period, such as the business quarter or fiscal year. You may also wish to perform a budget analysis across multiple time periods, such as monthly and quarterly. When you decide what time frame you want to analyze, consider how quickly money moves in and out of the business and gather any necessary financial reports you might create.


3. Track the company's budget

When you've determined a budgeting strategy and time frame, you can begin tracking the company's budget information. Many businesses use computer programs and other technology to simplify this process. Keep track of expenditures and income across the whole business. Many budgeting methods require the itemization of income and expenses, so be aware of the details necessary in your budget strategy.

Related: 7 Reasons Why Budgeting Is Vital for Successful Businesses


4. Analyze your results

Based on the time frame you've chosen, evaluate the company's budget information. Consider whether the company's expenditures or income are greater and why. If you notice that more money leaves the business than comes in, think about ways to limit spending or increase revenue. You might also use your budget analysis as the basis for requesting additional funding through a loan or finding external investors.

Related: How To Analyze Profit Margin Results


5. Set up for your next budget cycle

You can use the information from one budget cycle to set up for the next. This means that your end total for your selected time period becomes the beginning dollar amount for the next cycle. Remember to make any necessary changes based on your budget analysis.

Related: How To Be Effective at Budget Management


Tips for budget analysis

Here are some tips to support your budget analysis:


Leverage technology

Budgeting software can help you track the company's income and expenses. It can also help you make sense of the company's budget information in the increments you've chosen. For example, a particular budgeting software might provide reports that help you evaluate spending in a specific category or department. Research budget application options before beginning your budget analysis and reevaluate your software periodically to ensure it's still helping you meet your budgeting goals.


Collaborate with your team

Financial information can be complex, especially in businesses with many departments or divisions. You might find it helpful to collaborate with colleagues in your own department and others to decide what kind of budget to prepare, gather budget information and interpret the information collected from the budgeting process. You may also want to implement or suggest a formal budget committee or work group if one doesn't exist.


Explore solutions

An important part of the budget analysis is making sure you can use your results productively. When you find challenges in the budget, remember to explore multiple solutions. Brainstorming techniques to improve the company's budget can help make existing financial information more useful and inform following budget cycles as well.


Stay flexible

Make sure the budget serves the company's needs. For instance, if your budget strategy and analysis methods could provide more benefits, consider ways your process could change to better suit the company's needs. Collaborate with your team to brainstorm alternative budget analysis strategies. You may even implement a formal budget analysis process evaluation schedule to make sure your system stays as productive as possible.


Examine successful areas

While it may be easy to focus on areas of the budget where expenses exceed income, be sure to examine successful areas of the business as well. Look for departments or divisions that are successfully maximizing profit across budget cycles. Determine how they've achieved financial health in their area.


Identify trends for the future

Budget analysis can be a useful way to figure out how financially healthy a business is at any given time. It can also help you make predictions about a business' financial future. When you analyze a company's budget, see if you notice any trends and determine whether you can forecast future budget information based on that data.

This article is for informational purposes only and does not constitute financial advice. Consult with a licensed financial professional for any issues you may be experiencing.

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