Why Is a Quarterly Budget Report Important?
Quarterly budget reports include the financial results for a three-month period along with the budgeted dollar amounts for that same period. The report includes the numbers for each month and a total for the quarter. Managers, investors and creditors review these reports.
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Smoothing Effect
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Monthly budgets tend to skew the results when the company expects one month to include extraordinarily high sales or a periodic decline in sales. Making decisions based on the budget numbers for one month can lead to poor decisions.
Quarterly budget reports communicate the budget numbers for a three-month period. The budget coordinator combines the budget amounts for a three-month period, or one quarter, which smoothes out the impact of an extraordinarily high or an extraordinarily low month. Management can make better decisions using a quarterly budget since the extraordinary numbers are minimized.
Communicate Results
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Publicly traded companies report their earnings quarterly with the SEC. Quarterly budget reports allow management to understand the expected results of the company before reaching the point of reporting the actual earnings to the SEC. Quarterly budget reports allow management the opportunity to explain the expected results before reaching the point of releasing earnings reports. In most cases, the actual earnings closely coincide with the quarterly budget reports. This allows management to rely on their previously prepared explanation. Where the actual numbers differ significantly from the budget numbers, management needs to investigate further to explain the differences.
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Performance Evaluation
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Many companies evaluate managers based on their budget compared to actual performance for their department. Quarterly budget reports allow department managers to manage their departments by looking at three-month increments. The department manager compares the department's actual performance to the budget numbers and determines if he needs to make any changes. A three-month period allows the manager enough time to incorporate changes and see results without providing too long of a time frame.
Opportunity to Make Revisions
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Occasionally during the year, budget changes need to be made. Business circumstances change requiring the budget coordinators to relook at the budget numbers for the year. If the budget coordinator reviews the numbers on a quarterly basis, changes for the remaining quarters of the year can be incorporated going forward.
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