When your business needs to move beyond Excel spreadsheets for financial forecasting

Excel is a popular spreadsheet tool for personal and business use, and for good reason. It's a time-tested, accessible program that can accomplish a wide range of tasks, including financial forecasting and budgeting. Excel is an easy-to-use platform for inputting numbers and getting results with simple formulas. Businesses can customize templates to suit their unique needs — it's the industry standard for many in the office of finance.If your business has used Excel for financial forecasting long enough, however, you may have found run into some challenges with the program. These obstacles can become even more pronounced as your business grows and your financial planning gets increasingly complex. Here's how you can tell when forecast error issues signal that you may need a dedicated FP&A software solution and move beyond using only Excel.

Why businesses use spreadsheets for financial forecasting

Many small businesses start using Excel spreadsheets for bookkeeping and budgeting. With these spreadsheets, you can store, organize, and analyze valuable data. For example, you may use spreadsheets to plan your fiscal year or maintain your client sales list.With Excel's computing and analytical features, you can identify trends and sort your data into relevant categories. Excel can also perform functions relevant to your human resources department, such as organizing employee expenses and sorting worked hours. This information can help you understand workplace activities and your business' structure.However, there can be some disadvantages to using Excel for your company's financial forecasting. These become increasingly obvious when your business grows and your accounting needs get more complicated.

Disadvantages of Excel for financial forecasting

While Excel is not necessarily bad for data analysis or financial forecasting, it may not be the best option available to your business. Excel users at growing businesses eventually start to notice some shortcomings.

1. Risk of forecast errors

Accounting errors or forecast errors are among the most significant challenges businesses face when relying on Excel spreadsheets for financial forecasting and budgeting. Maintaining multiple spreadsheets requires manual data entry, which lets human mistakes creep in. Many spreadsheets contain forecast errors and capacity limitations, and incorrect or outdated data is one of the problems many businesses face with financial forecasting. If you draw information from several sources, the likelihood of a forecast error in your results increases.If someone accidentally enters incorrect data, it could throw off your budget and have a ripple effect throughout your company. A single miscalculation can lead to significant monetary loss. If you have started noticing forecast errors in your spreadsheets, you may want to switch to a more accurate system.

2. Limited visibility

To conduct financial data analysis, your business needs to test various hypothetical scenarios. For example, you may want to project what will happen if your business experiences downtime, if production costs rise, or if demand is lower than you expected. You need to account for these possible outcomes in advance to ensure your business plans are on the right track.Since Excel has a two-dimensional framework, it can limit your visibility. The process of generating what-if scenarios and financial models or incorporating several variables at once is time-consuming. The multi-dimensional model could also be challenging to envision, which may lead to further forecast error and oversight issues. If you want to tackle financial modeling easily and get accurate results, consider transitioning to a more advanced solution.

3. Distribution issues

Distributing or sharing individual Excel spreadsheets can be another hurdle to efficiency. If you email your spreadsheets, it  leaves confidential company information vulnerable. Spreadsheets that are too large may be impossible to send over email. And emailing different versions of the same documents reliably leads to confusion and miscommunication. Relying on email to distribute your spreadsheets is a hurdle many Excel users need to overcome.

4. Data security vulnerabilities

Excel spreadsheets come with more data security vulnerabilities than more advanced solutions. While you can set up password protection for a spreadsheet, you can only use one password. Users cannot create unique passphrases for access. Instead, you must share a single password with everyone in your business who needs access. Excel also lacks role-based security, so anyone with the password can see everything in the spreadsheet.Fraud is a bigger problem when there's a lack of an audit trail with Excel. Anyone with access can easily change numbers in your spreadsheets, and without independent verification, there may not be a way to catch errors. These vulnerabilities lead to false or inaccurate information in your spreadsheets and documents, which can lead to the danger of fraud and significant risk to your company.

5. Multiple file versions

If your business needs to share several spreadsheets throughout the company, you usually wind up with multiple versions of the same spreadsheet circulating simultaneously. Without version control, it's nearly impossible to determine which spreadsheet is the most up-to-date and accurate. Contributors may create different scenarios with a spreadsheet, such as what-if, worst-case, and best-case, along with a final version. So many spreadsheet iterations quickly become unwieldy and tricky to manage.

6. Lack of stored historical data

Excel spreadsheets may not be ideal for storing historical data. If you decide to update a spreadsheet, you risk losing information. Losses of historical data can lead to issues with comparisons and data analysis, which makes it harder to spot trends. For Excel to automatically store historical data, an employee must enter it, so if your business regularly changes the numbers in your spreadsheets, you can lose valuable information.

7. Minimal reporting capabilities

If you rely on Excel spreadsheets, you may be dealing with minimal reporting capabilities and delayed reporting. Detailed reports are crucial for performing predictive analysis and helping you gain essential insights into your data. For budget forecasters, real-time financial reporting has become increasingly vital. Excel spreadsheets may offer limited capabilities in this area, or even be the cause of unwanted forecast errors.If reporting is a time-consuming process and ends up causing delays, you might miss mission-critical deadlines. You need reliable and comprehensive reporting capabilities to plan and analyze your company's financial performance.

8. Broken formulas and templates

You can use Excel to design templates that are specific to your company's needs, and include formulas that perform calculations for you. When team members enter data, Excel can do automatic sums to help you develop your financial model. Templates and formulas make it easier for contributors to input numbers and get accurate totals.Unfortunately, this data is at risk for broken templates and formulas if you have multiple contributors to a spreadsheet. Team members may insert a column or line that breaks a formula, or enter information where it doesn't belong. Your only options when this happens are to overlook these mistakes, or to spend hours consolidating the spreadsheet and resolving the issues, adding significantly more time to your budgeting cycle.

9. Minimal collaboration capabilities

Excel is ideal for single users. If your business wants more than one user to collaborate on financial spreadsheets or reports, you will need to share it. This back-and-forth can make collaborating more time-consuming, especially if multiple staff members or departments need to work on the same report. If you send out the same spreadsheet to various people at once, you will then face the task of consolidating all the new entries.Newer versions of Excel offer multi-user features. However, reconciling can still be challenging and inefficient, especially when multiple staff members pull data from the same spreadsheet.If you want to restrict specific parts of the spreadsheet based on the user, you= face some challenges doing so in Excel. You can make some elements off-limits, but you may not be able to customize access for each user. Additionally, if you send out your spreadsheets to several contributors, Excel does not include a way to monitor progress or track spreadsheets. If you have a larger organization, you may spend more time consolidating your data than analyzing it for valuable insights.

10. Limited ability to test what-if scenarios

What-if scenario planning is essential for your company's budgeting and financial forecasting. With what-if scenario planning, you can improve your organization's financial performance, make decisions more quickly and confidently, and predict the future trends that will affect your business.While spreadsheets are excellent for simple budgeting and calculations, they may not be ideal for testing what-if scenarios. The process becomes even more challenging, time-consuming, and error-prone if you have data scattered across multiple folders or offices. This is a classic scenario that generates the kind of forecast error that can throw your business off course.

11. Time-consuming and inefficient manual entry

For your financial team, Excel may create more tedious work. Since manual data entry tends to be inefficient, your employees may dedicate more time to manual data entry than other tasks that can grow your business.While Excel is better than completing a budget with paper and pen, with today's advanced technology and companies' heightened need for efficiency, it may not be the best available solution for your business. If your company is growing rapidly, Excel spreadsheets may take up time you cannot spare.If your business is outgrowing Excel, you are not alone. It may be time to switch to another financial forecasting solution.

Centage's Formula-free FP&A™

Amwaste, a full-service waste and recycling company, and CompTIA, a nonprofit trade association, both experienced issues with budgeting and forecasting in Excel that Centage helped solve. They no longer worry about forecast errors thanks to our unique formula-free approach to FP&A.

Budgeting and forecast error challenges caused by over-reliance on spreadsheets

Amwaste consists of multiple entities, each of which has a separate budget and financial forecast. Amwaste's parent company, Matter Management Enterprises, requires a single overall budget and forecast. Each service's unique business drivers complicated budgeting. Amwaste relied on QuickBooks, then pulled the data from this software and manually entered it into separate Excel spreadsheets for each entity. After this step, the accounting team rolled everything into a single budget.Similarly, CompTIA was dealing with several budgeting issues, such as users getting locked out of the software and struggling to record or even access their numbers. The organization used an application that did not allow actuals or roll forward previous budgets. The finance team needed to create unique reports each month, and their budgeting process included downloading data to Excel, sorting and filtering this data, and creating individual reports.

Overcoming forecast error challenges with dedicated FP&A software

With Cenrtage, both organizations developed a more flexible, dynamic solution to address these pain points. The benefits they've enjoyed since adopting Centage's formula-free FP&A software include:

• Test what-if scenarios
• Identify relevant trends
• Eliminate the risk of errors
• Develop monthly forecasts
• Make business planning easy
• Create simple quarterly reports
• Depend on reliable support staff
• Automate daily tasks and workflows
• Easily analyze your budget vs. actuals
• Generate driver-based budget models
• Develop accurate proposals in just an hour
• Reduce discrepancies from manual data input
• Regularly modify and monitor your financial plan
• Automatically exchange data for financial forecasts
• Improve visibility into your company's financial wellness
• Automate integrate your general ledger with our software
• Gain insights into the future 18 months with rolling budgets

With our solution, these businesses were able to move from top-down budgeting to driver-based budgeting. They replaced slow, manual processes with accurate, timely, and automated forecasting.We understand that financial planning and analysis experts, controllers, and CFOs are critical to a company's success. That's why we created a platform to give finance teams the necessary tools to:

• Report accurately on progress and results
• Make fast, confident budgeting and forecasting decisions
• Propose action plans backed by insights and data
• Provide your executive team with strategic recommendations
• Eliminate formula-based forecast errors

Centage allows you to test what-if scenarios, integrate data from several sources, use automated forecasts to predict cash flow performance, and easily manipulate financial models. Increase your confidence in your organization's plan, team, numbers, and future. Book a demo today.