Speaker 1: Monthly Budgeting and Forecasting Model Let's look at the components of a budget or forecast model. It consists of monthly assumptions. This differs from most of our models which are annual. It can be helpful to know how to build a model on a monthly basis. We need drivers of operations. For an effective financial planning and analysis tool, we need to know what drives revenue, what drives expenses, capital costs, etc. From there we can build the three financial statements and have them dynamically linked together. This model has the ability to roll forward, meaning as historical or actual results come in, they replace part of the forecast and a new column of forecast is added to the end, and hence the model is rolled forward. Finally, there are charts and graphs which display the output of the model. Let's look at the purpose of a budgeting model. It's used for internal corporate planning and decision making. It's used for budgeting and forecasting purposes. It's used for measuring results and evaluating performance. And it's used for strategic planning and analysis purposes. To learn how to build this model from scratch, these are the courses that you can take from CFI to learn every calculation step by step. Let's jump into the model and look at some more detail. Here we are inside the 12-month rolling forecast model. As always, we have a cover page and a table of contents. Since it's a single tab model, it only has one spot to click on the table of contents, which is the entire model. It's organized into sections, as always, where we have assumptions at the top, then our three statements, supporting schedules, and charts and graphs. Let's open up all of the sections. We should also point out that it's structured very carefully to have the actual results on the left side, moving from left to right, and the forecast results over here on the right. So what happens is, as actual results come in, they get written over these columns that are forecasts, and the forecast extends out to the right. Now let's look at what we've got here. We've got assumptions about the operations of the business. Since this is a retail business, we have the number of stores as being a primary driver. We have assumptions for the balance sheet, and we have assumptions for financing of the business. From there, we can calculate the forecasted income statement, the balance sheet, cash flow statement, and we have these supporting schedules that are required to build the three financial statements. This model also has some debt covenants and leverage ratios, which can also be quite useful for FP&A purposes. And then we have summary charts and graphs that show the monthly cash flow and cash balance, as well as the debt service and covenants. So you can see that it's a very clean and simply structured model that provides monthly forecasting for a retail business. Let's take a closer look at how this monthly model works, and how we would roll it forward. What we would do is, once the next month of actual results come in, which in this case, since December has already been reported, the next month of actual results would be January. So what we would do is insert a new column here. And let's assume that the actual results for January were the same as the forecast. And we're just doing that so we can paste as values, Alt-E-S-V, the results from January. We can delete the forecast here. And then we just need to update this formula, so that the forecast moves over one month. So we've got the January actual results here, the forecast here. And then at the end of this model, we can select the entire column to the right, and press Ctrl-R to add one more month. So we go from February to February. And if we scroll down, let's just take a look. We see that the balance sheet is working, and this forecast has updated properly. It is quite literally that simple to roll forward and update this model. And you would continue doing this each month, adding one more month or one more column of actual results, and then extending the forecast out one more month on the end. So that's how you can use this monthly model for forecasting and budgeting purposes.