Financial Guide for SMEs - SME Corporation Malaysia

Financial Guide for SMEsMonitoring and Managing Your Profit and Loss BudgetThere are a number of ways in which the profit and lossbudget can be managed. As mentioned in Chapter 1,regular preparation of financial statements is important,particularly the income statements so that the actualactivities can be compared against the budget. Standardpractice would be to prepare monthly statements.However, for smaller businesses, quarterly preparationand comparison may be sufficient.Where the income statement is prepared on amonthly basis, the budget will need to be separatedinto months for the budget period. At the end of eachHINTRemember, the moreregular the reports,the fasteroperations can bereviewed for financialimpact and actioncan be implementedimmediatelywheneverrequiredmonth, the actual results are compared with the budgeted results to analyseany variances. Such variances should be highlighted on the reports andexplanations to be provided. All variances should be categorised as either a“timing” or “permanent” variance.A timing variance is where the estimated result did not occur but is stillexpected to happen at some point in the future.A permanent variance is where the expected event is not likely to occur atall.The power of this analysis is that each variance is documented for futurereference, and whenever required, actions can be taken to counteractfuture variances or implement new or improved activities to ensure that thestrategic goals underlying the budget can still be achieved.TIPRegular review of budget against actual results will provideinformation on whether your business is on track to achieve theplans formulated when you fi rst prepared your budget36Chapter 2-5 p22-65 Eng.indd 368/15/11 5:01:54 PM