This is not a sales pitch. Not every company that plans should implement Financial Planning and Analysis (FP&A) software. Small operations where a couple of people participate will do just fine with spreadsheets. Companies that plan once a year can afford to lose a few weeks. No biggie.
But if you check more than 3 boxes, please keep reading.
Yearly planning lasts > 1 month
Lots of people participate
Lots of spreadsheets used
Lots of versions
Data-heavy model(s)
Manual template management
Manual reports
The plan is not viable (departments not co-ordinated)
Boss wants rolling forecast
Boss wants what-if simulations
Boss wants driver-based planning
Boss wants to plan profitability on the product / person / atom level
Spreadsheets were not built to handle the complexities of corporate financial processes. Using your spreadsheet hammer for planning inevitably brings problems. You probably read the “Excel-hell” stories that FP&A vendors love so much. Someone messed up a calculation in a spreadsheet. People were fired. Lawsuits were raised. Lives were ruined.
Model integrity is not the only risk of spreadsheets. We are usually blind to opportunity cost. Being a laggard in adopting an FP&A solution certainly brings its own perils.
Here are some risks of not implementing an FP&A solution:
1. Your financial model is lagging behind business reality.
If the biggest customer goes bankrupt or the price of material goes up, the finance team could be the last to know. Spreadsheets used for financial planning are disconnected from the spreadsheets used for operational planning. This lack of “model granularity” means that the finance team doesn’t really understand or control the situation on the field. What are the top 10 most profitable customers? What happens if we increase the discount across all customers for one brand? What is the end price that guarantees your margin considering your recent COGS?
If you’re running your plan on spreadsheets, questions like these take days or even weeks to answer. And by then, it might be too late.
2. There are multiple versions of the truth.
Spin a couple of planning rounds, and people start to get version-vertigo. You get multiple versions of the same document with inconsistent data. After a while, it becomes impossible to find the “single source of truth”. And once you get to the situation in the picture, nobody cares about the truth anyway.
3. There is a mistake in your model.
Notice how even singular nouns - mistake and model made your blood freeze? Over 90% of Excel models have an error that impacts the calculation in a meaningful way.
Spreadsheets don’t guarantee data integrity. The data is not normalized. People can just add or delete something. It’s impossible to detect adjustments made and the reasons behind them. While switching customers from spreadsheets to Farseer, we find millions worth of mistakes every week. Your company will not burn up in flames because of mistakes in the model. But you might make the wrong decision and end up losing money.
4. Your expensive FP&A people are essentially spreadsheet bots.
The average base salary of an FP&A analyst in the US is $94,182. It’s probably safe to say that 50% of their time is spent on manual spreadsheet work. If spending $47,091 x the number of analysts per year on menial work doesn’t make you flinch, think about the opportunity cost.
These are educated, smart people that are good with numbers. They know your company, and they know your industry. There are probably better things for them to do than cutting, pasting, and debugging spreadsheets.
5. Your FP&A people will leave and take their macro-packed sheets with them.
We recently worked with a client where a guy built FP&A software from Excel and PowerBI. Plus paper clips and bubble gum. He was the only guy who knew how the thing worked. And then he left. By implementing a specialized FP&A solution, you future-proof your business. There is only one way of doing things. The model is properly-structured, self-explanatory, and documented.
It’s becoming increasingly difficult to find and retain good FP&A people in a spreadsheet-shuffling environment. Millennials are all about working on a job that fulfills us. And about avocados. But that’s a whole different post.
6. Being a laggard (late adopter) means falling behind the competition.
FP&A software is not what it used to be. Third-generation FP&A software has a 5-10x lower Total Cost of Ownership compared to the first and second generations. It is also user-friendly and easy to use.
At the point of writing this article, early adopters are switching from spreadsheets to FP&A solutions. The early adopters and early majority will be the first to reap the benefits of collaborative and predictive planning. Their FP&A teams will be busy analyzing the reports of the competition and inventing new business models.
Your FP&A team will be copying and pasting. Sapienti sat.
If you think that your financial models are overgrowing spreadsheets, and you need a better financial modeling tool, Farseer might be for you:
- Financial modeling in Farseer is centralized, fast, and consistent.
- You won’t need to worry about errors and mistakes.
- Natural language formulas are intuitive, error-proof, and cannot be deleted by accident.
- Sharing and exporting your work is granulated - you can share only parts of your model relevant to your user
- Built-in hierarchy makes modeling transparent by default
- Reorganize models by simply dragging and dropping entire spreadsheets to a specific location in the model.
LEARN MORE ABOUT FARSEER HERE