Target-actual comparisons involve comparing the original business plan with actual developments. Should actual developments show a significantly negative deviation from planned financial projections, it is definitely time for the business to take immediate action.
Lender banks need to know whether current lines of credit are being adhered to. In any case, significantly negative ‘downward’ deviations need to be explained and communicated as soon as possible. Otherwise the result could be a downgrading of a company’s bank rating with undesirable consequences for the business’s refinancing costs. In the worst case scenario, the lending bank may even choose to withhold funds.