# Budget vs Actual Variance Narrative

Turns a variance table into a short plain-English story the owner can read in three minutes. The workhorse deliverable for monthly or quarterly advisory packages.

## Prompt

## Context
You are helping an accountant turn a budget-vs-actual report into a narrative for a small business owner. The client is a [CLIENT INDUSTRY] business. The owner's comfort with financial statements: [OWNER FINANCIAL LITERACY]. Reporting period: [PERIOD].

Variance data, verified by the accountant. Each material variance includes the known reason:
[VARIANCE DATA — line item, budget, actual, variance, reason]

Materiality threshold for this client: [MATERIALITY THRESHOLD].

## Task
Write a variance narrative of [LENGTH] that the owner can read in three minutes. Structure: a one-sentence verdict on the period, the two or three variances that matter and why they happened, what looks like noise versus what looks like a trend, and one question the owner should sit with before the next review.

## Standards
- Lead with the verdict. Do not open with "This report summarizes."
- Explain each material variance using only the reason provided. If a material variance has no reason attached, write [REASON NEEDED] — never invent one.
- Translate for the reader. "You spent $4,200 more on subcontractors than planned," not "unfavorable variance in COGS."
- Use only dollar figures and percentages from the data pasted. Compute no new ratios.
- Variances under the materiality threshold get one sentence total or none.
- Neutral on bad news. State it, explain it, move on. No alarm, no spin.

If the data is incomplete or the threshold is unclear, ask before writing.

## Variables

- [CLIENT INDUSTRY]
- [OWNER FINANCIAL LITERACY]
- [PERIOD]
- [VARIANCE DATA]
- [MATERIALITY THRESHOLD]
- [LENGTH]

## Input checklist

- [ ] Final budget-vs-actual report from your accounting system — not a draft period
- [ ] A written reason for every material variance; if you do not know the reason, find out from the client first
- [ ] Your materiality threshold for this client, in dollars or percent
- [ ] Target length (300-400 words fits most monthly packages)
- [ ] Anonymize the client's financials or confirm your AI tool is approved under your firm's confidentiality policy

## Verification checklist

- [ ] Recompute every figure and percentage against the source report — AI arithmetic is unreliable, and variance narratives are dense with numbers
- [ ] Check variance direction on each item; favorable/unfavorable flips are the most common AI error in this deliverable
- [ ] Confirm every explanation traces to a reason you supplied — resolve any [REASON NEEDED] before sending
- [ ] Check that nothing below your materiality threshold got promoted into the story
- [ ] Confirm the noise-vs-trend calls match your own read; that judgment is yours, not the AI's
- [ ] Verify the period label is correct everywhere — wrong-month headers slip through

## Sample output

Sample output — AI-generated from sample inputs:

May 2026 — Ridgeline Plumbing & Heating

The short version: a profitable month that cost more to deliver than planned, and the cost overrun is worth your attention.

Revenue came in at $94,300 against a budget of $88,000 — $6,300 ahead, driven by the two emergency commercial calls in the second week. That part of the month worked.

The variance that matters is subcontractor cost. You budgeted $11,000 and spent $15,200. The reason: both commercial jobs needed a licensed electrician, and your regular sub raised his day rate in April. Higher revenue brought higher cost with it — about 67 cents of each extra revenue dollar went out the door to subs.

Vehicle repairs ran $1,900 over budget. That is the second month in a row, and the same truck both times. This is starting to look like a trend, not noise. The office supplies and software overages are noise — small, one-time, ignore them.

One question to sit with before June's review: if commercial emergency work keeps coming, do you price it to cover the electrician sub at his new rate, or do you start declining the jobs that need one?

## Customization notes

Set [MATERIALITY THRESHOLD] once per client and reuse it — consistency is what makes the narrative trustworthy month over month. For accrual-basis clients with timing variances, add a Standards line telling the AI to label timing differences as such. Nonprofit clients: swap budget-vs-actual for budget-vs-actual by program and add restricted funds to the data.

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From The Accountant & Bookkeeper Advisory Library — vetslearn.com/libraries/accountant