Many finance teams still rely on Excel or Google Sheets when developing financial models.
After meeting various finance teams, we've found three key needs that suggest a move to an FP&A platform would be beneficial.
These needs are tough to meet with Excel or Sheets, often leading to oversized, complex models. Moreover, these issues tend to compound each other, often leading to 'Excel paralysis,' where people fear making changes due to the risk of breaking the model.
Here's a break-down of the three needs: 1) working with multiple entities or dimensions, 2) creating annual budgets and rolling forecasts, and 3) needing to involve stakeholders with limited access.
#1 Working with multiple entities or dimensions
Managing budgets for multiple entities or dimensions typically means dividing the budget and creating separate sections for each in your financial model. These sections are combined for a complete view, and there's a format for entering actuals financial data.
Such systems depend heavily on Excel formulas and are prone to breaking or needing updates, like when adding new entities or accounts in the ERP that aren’t included in the template. These updates not only exhaust the finance team’s time but also carry a high risk of unnoticed errors, leading to incorrect figures. Finance leaders often find updating these self-built systems demanding and challenging.
Additionally, importing and converting data for multiple entities into the correct format is a manual, time-consuming, and error-prone task, risking inaccurate analytical results.
In contrast, advanced FP&A platforms offer consolidations and native data connections, providing a more stable and robust system.
#2 Creating annual budgets and rolling forecasts
Finance teams spend significant time collaborating with other departments to establish annual budgets. Once agreed upon, these budgets are fixed, and throughout the year, teams update forecasts to predict year-end outcomes. This is sometimes done on a company-wide basis, and sometimes it is carried out solely by the finance team.
Excel and Sheets are not ideal for versioning. The usual workaround is duplicating workbook files and labeling them with version IDs like "V1", "V2", "V3", and "V_Final" (or "V_Final_final"). But once duplicated, comparing the versions directly becomes challenging. Some teams also keep budget and forecast versions in the same workbook, leading to numerous tabs and a system that's hard to manage. Keeping track of different versions is crucial, but traditional spreadsheets make this difficult.
Effective FP&A platforms have built-in versioning and comparison tools, allowing for change logs and comparison of forecast versions over time.
#3 Needing to involve stakeholders with limited access
When finance teams work with other departments on budgets, collaborators usually access only their financial data, not the company-wide information. Traditional spreadsheets struggle to provide this level of restricted access. This often leads to multiple Excel files being circulated within the organization, adding to the complexity and potential for errors.
Modern FP&A platforms support regulated collaboration, allowing individuals to access their specific financial data while ensuring confidentiality. This fosters company-wide collaboration and buy-in and contributes to breaking down silos.
In summary, finance teams facing challenges with managing multiple entities, multiple forecast versions, or requiring controlled stakeholder access should consider moving from traditional spreadsheets to a specialized FP&A platform. At the same time, smaller finance teams can also benefit from migrating to FP&A platforms due to improved efficiency, automation, and the future-proofing of their setup.
If these issues aren't relevant to your organization, Excel and Sheets may still be adequate for your needs. It's essential to weigh your specific financial management requirements and choose the tool that best aligns with your team's current and future demands.