Why your months repeat
What a forecast scenario is
A forecast scenario is your accounting figures and your business data, with assumptions over both.
Your figures
Your closed months as your books report them, plus the business data you've given us: your people, your revenue, your costs.
The assumptions over them
Some you set: a new figure on an item, a percentage increase, a cost that only lands in certain months. Some are ours: sherloc links items to your accounts and business data, and works out cash at bank and current year earnings for you. Where an item has no assumption at all, your last closed month is the starting point.
What we don't add is a growth rate, an inflation figure or an industry average of our own. Beyond what your business data and the two calculated figures drive, nothing moves unless you move it.
What happens to the months ahead
Your last closed month is the starting point for everything after it. Every month ahead that you haven't set an assumption on repeats that month's figures, item by item.
So if June is your last closed month, July, August, September, October and November each open showing June's figures (the same revenue, the same wages, the same rent) until you set an assumption against them.
Items worked out from other items behave normally. Totals, gross profit, your cash position and any ratio built on them all recalculate from whatever the items above them say.
It's a starting point, not a prediction.
Two figures are the exception: cash at bank and current year earnings are calculated rather than carried forward. See Why cash at bank and current year earnings are calculated.
Why we do it this way
A blank forecast would be the worse guess
Empty months would show no revenue coming in and no costs going out, which is a picture that's certainly wrong. Your last closed month is a plainer and more useful place to begin: it's the one month we know something real about.
Your numbers work from the first month
Because every item already holds a real figure, your cash position, runway and ratios all calculate straight away, before you've set a single assumption. You get a complete model to react to rather than a blank one to fill in.
Your own thinking stays visible
Untouched months hold steady, so anything that moves in your forecast moves because you decided it should. You can always tell your decisions apart from your accounting history, and see exactly which items you've taken a view on.
What that means you need to check
Anything that doesn't happen every month will be repeated until you tell us otherwise. Before you rely on the months ahead, read down your last closed month and ask five questions.
Does this happen every month?
An annual insurance premium, a quarterly VAT payment, a bonus, a one-off legal fee. Each of these is repeated in every month ahead if you leave it as it is.
Is anything missing?
The reverse of the question above. A payment that fell in an earlier month (a tax bill settled two months ago, an annual licence renewed in the spring) isn't in your last closed month, so it isn't in the months ahead either. Set an assumption on that item for the months it falls in.
Was this month typical?
Your last closed month sets the tone for everything after it. A quiet month becomes a quiet year, and an unusually strong one becomes a year you're unlikely to hit.
Has anything ended?
A contract that finished, someone who has left, a loan close to being repaid. These carry on at their last value until you set an assumption that stops them.
Should anything grow?
Nothing rises on its own. Pay, prices, supplier costs and rent all hold flat until you set an assumption to move them.
Anywhere the answer changes the picture, set an assumption on that item. A cost that only lands in one or two months is covered in Modelling a seasonal or one-off cost; an item that should climb steadily is covered in Modelling revenue or cost growth over time.
What changes when you set an assumption
The months you chose, and no others
Choose All months, a Date range or Specific months, and only those months change. Every month outside the range carries on repeating your last closed month.
Everything worked out from that item
Items calculated from the one you changed move with it: totals, gross profit, your cash position, runway and any ratio built on them.
Nothing else
Items you haven't touched keep repeating as before. Setting an assumption on one cost item never disturbs another.
Change an assumption later and the months ahead change with it straight away. There's no need to rebuild the scenario.
Worked example
One cost item: an annual insurance premium of £6,000, paid in your last closed month. Round numbers, June to November.
Month | Repeated as it is | With an assumption set | What happened |
|---|---|---|---|
June | £6,000 | £6,000 | Your last closed month. The annual premium was paid, so £6,000 sits on the insurance item, which is a real figure from your books. |
July | £6,000 | £0 | Left alone, June repeats and the premium looks as though it's paid again. Setting an assumption on the insurance item for July onwards brings it back to nothing until the policy renews. |
August | £6,000 | £0 | |
September | £6,000 | £0 | |
October | £6,000 | £0 | |
November | £6,000 | £0 | Five months on, the difference between the two columns is £30,000 of costs that were never going to be paid. |
July to November | £30,000 | £0 | One assumption on one item. |
The same applies in reverse. A month where revenue was unusually low repeats as your new normal until you set a figure you believe in.