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Limits of Spreadsheets for Modern Budgeting & Planning

August 8, 2023
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When an organization first sets up its budget, an easily accessible tool like Excel can be the perfect solution. It is the most widely used software application in the workplace - you’d be hard pressed to find anyone without at least occasionally opening an Excel workbook and using it for a variety of applications. But as a business grows and financials become more complex, an Excel or spreadsheet-based budget may be holding it back.

Excel requires a lot of specialized knowledge and managing financials within it can be particularly brittle and unreliable. Worse, when your company is ready to migrate to a new financial model, like rolling forecasts and scenario planning, or report on company performance,  Excel may hold you back from making the leap to move your company forward.

Multiple Users and Sharing Spreadsheets

In the early days of a company’s life cycle, it can easily set up its financials in a single workbook on a single budget spreadsheet. As the business grows, however, data needs to be more compartmentalized. Sales and operating expenses may be tracked on different tabs, with the resultant data pulled together in the main spreadsheet. Plus, more team members will need to have input into the numbers that make up a company’s budget.

Combining spreadsheets is error-prone, and if there isn’t a standard layout used, time-consuming. Plus, data spread across multiple workbooks can obscure a company’s big picture, hiding issues until multiple sheets are combined or reconciled monthly or quarterly. Also, Excel isn’t renowned for its multi-user functionality. The process of multiple people updating a spreadsheet is linear, making it exceptionally vulnerable to mistakes.

What growing companies need is the ability for multiple stakeholders to collaborate on financials, without fear of introducing errors through copy and paste. They also need the ability to see clearly - and frequently - the current health of the business so that action can be taken quickly.

The Challenge of Constant Change

Even for a small company, an annual budget doesn’t last long into the new fiscal year without changes and updates. If your spreadsheet leverages advanced functionality or programming within Excel, changes and updates can be a time sink. The resource most familiar with advanced spreadsheet functionality must perform the updates to ensure nothing breaks. Plus, with no error checking features, it’s easy to break a formula, causing bad data and forcing a rework.

Modern businesses must keep on top of their financials throughout a budget cycle to remain agile in the marketplace. Changes and updates to your budget with actuals, or as a result of a shifting business landscape, should not require hours of updates and validation by valuable resources.

A Flexible Budget Model

Many businesses find that an annual budget doesn’t meet their needs. They need tighter control with more frequent input. Or they need to understand the direction to take based on certain variables and the company’s goals.

Moving to a rolling forecast while using spreadsheets could mean revamping or recreating your existing system. If your financial tracking and budgeting have grown organically as your business has grown, you may be faced with an insurmountable challenge to adapt your current system to more frequent reviews and updates.

If scenario planning is something that would benefit your company, spreadsheets can slow down that process, too. Duplicating entire, complex spreadsheets to explore different scenarios is inefficient at best and riddled with errors or worse. Scenario planning is useless if you can’t trust the numbers.

As your business grows, you need to be flexible with your financial models and forecasting. Training staff and educating them on the benefits of, say, rolling forecasts should be your main focus, not the mechanics of your tools for the task. Scenario planning, too, should be a seamless operation that provides planning insight into your organization, not something that is avoided because of the complexity involved.

Spreadsheets and Reporting

The main risk in using a spreadsheet in the preparation of corporate financial statements arises from the use of home-grown spreadsheets with user defined formulas, functions, macros and links, all of which can include errors and omissions, and can be easily overwritten or manipulated, erased or lost. To that add the typical lack of periodic review of these spreadsheets for accuracy and completeness, and the risk for material errors in the financial statements increases considerably.

The same is true for corporate budget preparation and periodic re-forecasting done in Excel.  This is still common practice in many organizations and even well known, dedicated database based planning and budgeting solutions use a “spreadsheet like” approach having some of the pitfalls listed above, reasoning that users are already familiar with the Excel interface and use of its formulas, functions and links.

When it comes to visual reporting, leaders and executives have become accustomed to charts, graphs and dashboards that make it easy and quick to understand what is going on. Excel makes this difficult as both creating and sharing visual reports is challenging. Chart wizard is meant to make visual reporting with the software easy, instead, the tool is slow, inflexible and complicated to use. 

After reviewing a report, oftentimes it needs to be shared, and Excel falls short here, too. If you’re looking to share charts and graphs, they need to be sent in a static file. If they can view the files (it’s common for these visuals to break depending on screen size and other issues) the receiver then isn’t able to manipulate the data. They can’t change numbers to see how different elements affect the reporting, and they can’t drill down to gain greater understanding of the data’s relationship to other factors.

Excel was never built as a tool to create reports meant to influence how companies plan their financials.

There was a time when Excel was enough for your business. Just as you wouldn’t stay in an office that couldn’t house all your employees or stick with a manufacturer that can’t keep up with your demand, so too, you should evolve past spreadsheets for financial budgeting, planning and forecasting.

An Excel Alternative

Centage provides FP&A software solutions that empower Finance teams to lead the way to a stronger, more agile business. Planning Maestro, a modern cloud platform, makes sophisticated budgeting, planning, and forecasting easy and accessible. Intuitive automation accelerates workflows and improves accuracy, enabling Finance leaders to deliver reliable information and meaningful insights at the speed of business—without straining their resources.

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