Another best practice for formatting is to put

all the assumptions in your spreadsheet, also known as inputs, on one tab.

Assumptions are hard coded numbers that impact formulas in other cells.

If you are making a budget, it might be what your monthly income is.

Here we're looking at someone's budget.

We have what their income is, how much they spend on various expenses each month,

and then some extraordinary expenses, these are on the Input tab.

And then we have an Output tab, which shows the results

of that by month.

So, this person right now has an annual gross income of $40,000.

And let's say their boss told them they're gonna get a raise next month, so

they wanted to see how that's gonna impact their funds.

So let's go see here, in total disposable income for

the year, we have $8,630.

What happens if they get a $5,000 raise?

Their tax rate might change, but let's assume it stays flat.

Well, now they have $13,130 in disposable income.

But you can see that I'm not changing anything on this page.

Everything here is coming from assumptions that I can change here.

Another example is maybe you're forecasting your retail business revenue

and want to understand how the number of units you sell impacts your profit.

The idea is to structure your spreadsheet in a way that will allow you to maintain

it more easily.

A lot of spreadsheets where you are forecasting based on data in

the spreadsheet are set up with that in mind.

Where you have one tab with all the assumptions, known as an input tab,

that drive the other tabs, known as output tabs.

This is important because forecasting has so much uncertainty.

When you are preparing a forecast,

you'll want to have the ability to discuss the inputs that are driving your forecast.

Do these assumptions make sense?

Let's think about what could change, and see how that impacts our outputs.

This is why the organization of your spreadsheet for

forecasting purposes is crucial.

You're probably gonna have to run a bunch of scenarios.

In this example, you can see how I have an Input tab,

and then two Output tabs that are driven by assumptions in the input tab.

In this case, we have an output by month, Where you see all the different months

going forward for the different years in our forecast, and outputs by year.

Let's look at some examples where changing the assumptions impact the outputs.

Let's start off by looking at how average sales prices can impact our outputs.

So I'm gonna go over here to the output by year tab and look at Year 3.

$237,000 in revenue is what we're forecasting for Year 3.

I'm gonna go back to the input tab, and change the assumption for

belts, average price per unit, from $100 to $200.

I'm going to copy that, and paste it across all the different years.

Then I'm gonna go back to the Output/Year and see, wow, sales have increased a lot.

So let's just do that over again.

We've got $100 as the assumption, and

we see $237,000.

And we change it back to $200, and we got $360,000.

So if we're able to successfully increase the price of the belts that we sell,

our revenue is gonna drastically increase.

Let's look at the expense side.

Earlier, I went back and forth between the OutputYear tab and

Input tab to see the impact of the sensitivity.

Another little thing you can do to save yourself some time, if you like,

is you can make a cell on your inputs tab equal to something on the outputs tab.

Let's put it equal to our Year 3 net income in this example,

which is about $12,500.

Let's see what happens if we're able to successfully reduce our rent, so

we'll start off at $500.

No impact on Year 3 because I changed the Year 1 assumption.

$600, cuz of some sort of increases, usually mandatory in lease agreements.

And look at that, if we're able to reduce our rent expense,

then, unsurprisingly, our net income in Year 3 goes up significantly.

So if you're looking for ways to raise profit,

you might advise your boss to seek out a different facility to operate in.

I'm gonna change these back to the original assumptions, which were $1,000,

$1,100 and $1,200.

Again, this way of structuring things is helpful,

because you know where all the assumptions are that can impact your calculations.

You don't have to remember to go to several different places in a spreadsheet

when you're making updates.

Also, if you get promoted and hand your spreadsheet off to someone else, following

these organizational best practices will make the transition much smoother.

All you have to do is focus on making updates to one tab.