After your hard work putting together a budget, tracking, and cleaning up data with your clients, the big moment arrives…. the actuals start rolling in!
No budget vs. actuals will be perfect, so this is an opportunity to further refine and do some detective work with your clients.
In fact, this detective work can be the focus of advisory conversations with your client, building a collaborative relationship and adding significant value.
Forecasts can be your solid starting point, an anchor for discussions with clients when figuring out variances. Before meeting with your client:
1) Comb through the results to see where the biggest differences in predicted and actual outcomes occurred.
2) Don’t look to explain every difference as you come across them. Instead, compile the areas where the biggest differences occurred first after your first review.
3) Once you have the biggest factors singled out, then start the analysis. If not, you may waste valuable time without the full picture.
Remember that every point you make should stem from something observed in the forecast and the variance report.
A crucial thing to remind your client about forecasts is this: differences aren’t failures.
Many events can happen that create a gap between the real world and the predictions, many of which are external to your client’s operations. For example, COVID-19 impacted nearly every business, but no one could have been expected to include it in their forecasts at the end of 2019.
Here are some tips for the difference discovery process:
1) Work with the data you have, trying to paint as clear of a picture as you can of where these differences came from.
2) Tie in operational data where applicable, there will be key information about things like headcount that will fill in some of the gaps.
3) As you’re going through the differences, start writing down notes on what may have happened. Structure your notes as a cause and effect. Single out the factors that contributed to the variance first and then the resulting outcome.
Make note of any unexplainable differences, and be ready to ask your clients to fill in the information gaps.
Never shy away from asking questions to your clients about variances. You may be the accounting expert, but they are the experts in their operations.
1) Create the expectation that the best results come from regular dialogue.
2) Ask your client about any challenges they faced or any stressors that infringed on their operations. You might get some new information that’s the final piece of the puzzle.
3) Set regular touchpoints with clients instead of waiting for the end of the year. Decide if it’s going to be weekly, monthly, or another frequency that suits you both.
Remember that you don’t have a crystal ball, and you can remind clients of your roles as their FP&A advisor:
Congratulations! You’ve identified the variance, explained the differences, and discussed the results with your client.
Your final task is to incorporate the new information so your model better reflects reality and serves your client.
Common variances that you’ll need to adjust for are those that will likely continue to impact the business for future time periods, including:
You’ll also account for overhead variances, which can be a catch-all other unexpected factors affecting the bottom line. Examples include repairing broken equipment, higher usage of utilities, and any penalties or fees. Overhead variances are generally not assumed to continue beyond the reporting period.
As an advisor, you want to focus your energy on creating value for clients. As you update your predictions and models based on conversations with your clients, there is a fair amount of adjusting required which leaves room for error if relying on less sophisticated tools such as spreadsheets.
Finding the right tech solutions means you can have seamless, standardized reporting which is a pleasure to create and share with clients. Jirav was built to make your engagements with clients easier, allowing you to focus on building relationships and exceeding their goals. Give it a try with a free demo, our team is waiting for your call!