- It compares the planned or forecast figure to the equivalent figure in a previous comparable period – usually the previous year
- It expresses the difference as a percentage
| <><><><> | Previous year | Budget year | Variance | Assumptions |
Volume of sales | 600 | 660 | +10% | |
Average unit price | £9.09 | £10 | +10% | |
Sales income | £5,454 | £6,600 | ||
Average unit cost | £6 | £6 | 0% | |
Direct costs | £3,600 | £3,960 | ||
Salaries | £1,800 | £1,800 | 0% | |
Rent | £720 | £738 | +2.5% | |
Net profit | (£666) | £102 |
- Your wider business plan (strategy, market positioning, sales performance, supplier management and so forth) must then provide an explanation for any difference
- This will expose any assumptions you have made and the potential impact on your business should they prove to be wrong
- In the above example, the plan is based on increasing the number of sales as well as the price whilst holding unit costs and salaries to the previous year’s level
- These might all be reasonable and achievable but a credible business plan must explain how and why these things are going to happen
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