Why databases beat spreadsheets for forecasting and budgeting

Fortunately, spreadsheets are not the only option. Database technology, properly applied, makes it easier to collect, consolidate, report and analyze financial data. The contrasts to spreadsheets are significant:

• Databases are multidimensional, like a business.
  Instead of forcing a complex business into a flat spreadsheet, modern databases can accommodate very large numbers of records tied together in relationships defined by the user. Databases are relational documents lending themselves to the creation of the Balance Sheet and the Statement of Cash Flows, as well as multidimensional views and reports of forecasted and actual data. Depending on the user's hardware, millions of records can be handled as easily as a few dozen.
  
  
• Databases simplify data entry and reporting.
  Unlike a spreadsheet where the user must find and enter data in the right cell in the right spreadsheet, database systems can be programmed to accept entries as responses to natural language prompts. The system then automatically stores the data in the proper data table. Likewise, databases generally provide a report writer where users can create custom reports based on the existing data tables, apply specific filters to the data (for instance: show all sales, by product in the Northeast sales territory only). Users can modify preset reports or add their own. In many cases, the report format can be made to mimic the format existing in the user's accounting software.
  
  

A useful forecasting system should be an extension of the company's accounting system. It will have a similar General Ledger account structure, similar accounts and similar transactions, only that these transactions have not occurred yet since they are future transactions. This is impossible with a spreadsheet-based forecast, but easily achieved with a well-designed database system:

• The database turns forecast projections into G/L journal entries for future periods
  Translating forecast data into date-stamped future General Ledger journal entries is what makes accurate proforma financial statements possible. It allows the system to create the balance sheet and cash flow statement for future periods, displaying only the user-requested periods. It is the database that automatically performs this translation, without special programming. The accuracy of these forecast statements is dependent only on the quality of data, not on the accuracy of complex formulas and links in a large spreadsheet.
  
  
• Comparative reports of budget versus actual are easily produced
  Using a database solution, all historical (actual) data, resides "alongside" forecast data, in a very similar format. This allows the database user to easily produce very simple comparative reports (for instance, the Income Statement year-to-date forecast vs. the same, using actual data).