How to Forecast Expenses in Excel

Trying to predict your future business expenses can feel like guessing the weather, but it doesn't have to be. With Microsoft Excel and a bit of historical data, you can create a reliable expense forecast to guide your budgeting and strategic planning. This article will walk you through several straightforward methods for forecasting expenses in Excel, from simple averaging to trend-based projections.

First, Why Even Bother Forecasting Expenses?

Expense forecasting is the process of estimating your business's future costs over a specific period, like the next quarter or year. It’s more than just an accounting exercise, it's a vital part of strategic business planning. A solid forecast helps you:

• Budget Effectively: Know how much cash you'll need to cover operations, preventing cash flow surprises.
• Make Informed Decisions: Decide if you can afford that new hire, a bigger marketing budget, or new equipment.
• Secure Funding: Investors and lenders will want to see a detailed financial forecast to be confident in your business plan.
• Set Realistic Goals: Understand your cost structure to set achievable revenue targets and profit margins.

In short, it’s about replacing guesswork with data-driven confidence.

Step 1: Gather and Organize Your Historical Data

You can't predict the future without understanding the past. The first step is to pull together your historical expense data from the last 6-12 months. The more data you have, the more accurate your forecast will be.

Look for this information in your accounting software (like QuickBooks or Xero), bank statements, payroll systems, and credit card statements.

Categorize Your Expenses

It’s important to separate your expenses into logical categories. To keep it simple, you can start with two primary types:

• Fixed Costs: Expenses that generally don't change from month to month. Think of things like rent, salaries for full-time staff, insurance premiums, and base software subscriptions.
• Variable Costs: Expenses that fluctuate based on your business activity. This includes things like marketing ad spend, hourly contractor fees, shipping costs, and raw materials.

Set Up Your Excel Sheet

Open a new Excel sheet and create a simple table to organize your data. Your goal is to have a clean, easy-to-read list of your recurring expenses over time. It should look something like this:

Example Data Structure:

Structure your data with months across the columns and expense categories down the rows. This format makes it easy to apply formulas and spot trends.

Step 2: Choose Your Forecasting Method

Excel has several built-in tools that make forecasting surprisingly simple. Here are three popular methods, starting with the easiest.

Method 1: Manual Projections (For Fixed Costs)

This is the simplest method and is perfect for your fixed costs.

Forecasting things like rent, insurance, or flat-rate software subscriptions is usually straightforward. Since these costs rarely change, you can often project them forward with the same value.

How to do it:

In the cell for your next month's forecast, simply reference the previous month's cell.

=F2

If you're in cell G2 (July's Rent Forecast) and F2 contains June's rent, this formula will carry the value forward. You can then drag this formula across for all future months.

Pro Tip: Remember to adjust the forecast for any known future changes. If you know your rent is increasing by $200 in September, manually adjust that month’s forecasted cell to reflect the change.

Method 2: Moving Average (For Taming Volatility)

A moving average helps smooth out random fluctuations in your data to reveal the underlying trend. It's great for variable costs that jump around month-to-month, like office supplies or freelance support.

The method works by taking the average of the last few periods (e.g., the last three months) to forecast the next one.

How to do it:

Let's say your Marketing Ad Spend data for the last six months (Jan-June in cells B5:G5) looks like this: $2,500, $2,700, $2,600, $3,000, $2,900, $3,100.

1. In the cell for your first forecasted month (July, cell H5), you'll calculate the average of the last three months (April, May, June).
2. Use the AVERAGE formula:

=AVERAGE(E5:G5)

Excel will calculate the average of those three months ($3,000 + $2,900 + $3,100) / 3 = $3,000. So, your forecast for July is $3,000.

To forecast August, you'd find the average of May, June, and your forecasted July value. The window keeps "moving" forward.

Method 3: The FORECAST.LINEAR Function (For Identifying Trends)

What if your expenses are consistently increasing or decreasing? A moving average might not capture that momentum. That's where Excel’s FORECAST.LINEAR function comes in. It analyzes your historical data to find a linear trend and projects it into the future. It's perfect for costs that are scaling with your business, like ad spend in a growing company.

The formula looks like this:

=FORECAST.LINEAR(x, known_y's, known_x's)

• x: The future data point you want to predict (e.g., month number 7).
• known_y's: Your range of historical expense values (the dollar amounts).
• known_x's: Your range of historical time periods (the month numbers, e.g., 1, 2, 3, 4, 5, 6).

How to do it:

Let's use our Marketing Ad Spend data again. First, set up your sheet so you have a series of numbers representing the months.

1. In a blank column, enter the numbers 1 through 6 next to your January through June historical data. These will be your "known x's".
2. In the rows below, enter the future month numbers you want to forecast (7 for July, 8 for August, etc.). These will be your "x" values.
3. Click on the cell next to month 7 (cell C9 in our example).
4. Enter the FORECAST.LINEAR formula. In our example, it would be:

=FORECAST.LINEAR(B9, $C$2:$C$7, $B$2:$B$7)

• B9 is the future month number we want to predict (Month 7).
• $C$2:$C$7 is our range of historical monthly spending (the y-values). We use dollar signs ($) to lock this range so it doesn't shift when we drag the formula down.
• $B$2:$B$7 is our range of historical month numbers (the x-values). We lock this range as well.

Press Enter, and Excel will project the trend line to forecast the expense for Month 7. You can then drag the formula down to automatically forecast months 8, 9, 10, and beyond.

Step 3: Build Your Complete Expense Forecast Model

Now you can combine these methods to build a full forecast for all your expense categories.

Your goal is a master sheet that clearly separates historical actuals from future projections.

Here’s how you can structure it:

1. List all expense categories down the first column.
2. Fill in your historical data for the past 6-12 months. Label these columns clearly (e.g., "Jan Actuals," "Feb Actuals").
3. Create new columns for your future, forecasted months (e.g., "July Forecast," "Aug Forecast").
4. Apply the right method to each category:
5. Add a "Totals" row at the bottom. Use the SUM formula to total your actual and forecasted expenses for each month. This gives you a clear picture of your total projected cash burn.

Tips for Maintaining an Accurate Forecast

A forecast is a living document, not a one-time project. Here are a few tips to keep it relevant and accurate.

• Account for Seasonality: Do your utility costs spike in the winter? Do you spend more on marketing in Q4? Adjust your formulas or manually override forecasts for months where you expect seasonal changes.
• Exclude One-Time Outliers: Did you buy new computers for the whole team in March? That's a one-off expense. Remove it from your historical data before running a trend analysis to avoid skewing your future forecast.
• Create Multiple Scenarios: It can be helpful to build three versions of your forecast: an optimistic case (lower costs), a pessimistic case (higher costs), and a realistic case. This helps you prepare for a range of potential outcomes.
• Review and Update Regularly: At the end of each month, compare your forecasted expenses to your actual expenses. If you’re consistently over or under budget, it’s a sign that your assumptions need revisiting. Use this new information to refine your model for more accuracy.

Final Thoughts

Forecasting expenses in Excel doesn't require a degree in finance. By organizing your historical data and using built-in functions like AVERAGE and FORECAST.LINEAR, you can create a forward-looking budget that empowers you to make smarter, more confident business decisions.

While Excel is an outstanding tool for this, the most time-consuming part is often the endless cycle of exporting CSVs from your accounting, sales, and marketing platforms to manually assemble your data. We built Graphed to solve exactly this problem. By connecting directly to tools like QuickBooks, Stripe, and your ad platforms, we instantly unify your financial data so you can generate live dashboards and forecasts without ever opening a spreadsheet, letting you ask for financial projections using simple, plain English.