Spreadsheets are not a panacea
Whilst the spreadsheet is a great tool for some things, it isn’t the tool for everything. I had a laugh this week when Chris Ball shared this on LinkedIn.
My husband thinks that Excel can be used for anything, from planning a project to producing a technical drawing – yes really!
If we’re honest, we know this isn’t true, and for some things, a spreadsheet isn’t the answer. When planning, if we want to move beyond simple profit and loss, into a full 3-way forecast (P&L, balance sheet and cash flow) we need to consider other architecture.
An integral decision is the choice of finance system. Reality is an important part of a living breathing operational plan, one that will challenge the assumptions and prove or disprove them. Being able to integrate financials is key.
And architecture decisions extend to how we structure our chart of accounts. Few businesses tie their chart to the way they forecast. If there is no link between the two, measuring progress towards our goals becomes almost impossible.
Architecture considerations relate to how we will interact with and update the forecast, and how our selected tool will deliver the various reports we need; not just a forecast profit and loss, but a forecast cash flow and a balance sheet as well.
The spreadsheet no doubt has a part to play in the overall solution – after all, it is an intuitive data input tool, and universal use means training your team, provided it is stays simple, will be straight forward. And yet the spreadsheet will struggle to create the double-entry required to generate the balance sheet from your profit and loss forecast and handle the complexities of cash collection. Specialists tools are far better for this purpose. Having created such systems for clients from scratch, I’m pleased there are now tools on the market that are purpose-designed for this.
Selecting the right architecture for our financial forecasting tool is a bit like picking the right kind of structure for where we live in the world. If we’re building in an earthquake zone we need a different architecture from one we might select if building in a flood area.
Incidentally, this is a great article on how buildings are designed to be earthquake-proof.
The purposeful planning programme helps tech scale-ups clarify their assumptions to create transaparent operational plans that keep investors feeling safe, secure and supportive.
