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Start your finance teams modelling journey on the right foot for 2021

The new normal for Finance and Accounting

Finance and Accounting teams are expected to take a more strategic seat given the high rates of uncertainty in 2021 in relation to profits, cash flow and general business stability.

This is not about analytics but financial modelling. 

Analytics is still valuable, but scenario modelling is slightly higher in demand currently. It's the answer to the analytics so what?

It's the what-if?... that is more insightful at the moment.

Whilst being a strategic finance leader is a lot more than financial modelling, enabling the team to do proper modelling (not just forecasting) is a key ingredient.

Influencing and communicating those scenarios and options available is equally vital.

If there is one thing that 2020 has shown us it's the level of uncertainty we have to deal is not only unprecedented, it's not going away anytime soon (recent South African and UK resident restrictions are one but many challenges ahead in 2021). 

Many teams were asked to re-forecast their numbers multiple times. 

What we did possibly annually and quarterly in the past, we now had to do monthly, weekly and in really bad cases multiple times a day.

So as we restart 2021 the likelihood of the uncertainty going away is probably a little slim. 

The need for quicker and more dynamic forecasting is going to continue whilst the big investments in planning systems are not only unlikely given limited spend, but it will also take many months to implement rather than weeks….and arguably still never quite get there.

Building rolling driver-based forecasts is very achievable within Excel if you know how, especially with data tools like PowerQuery, Power Pivot and DAX.

And for the more adventurous using PowerBI which already has these 3 core elements.

Tidying up the backyard

The badly designed and built Excel environment is the first big hurdle to tackle and is holding us back.

Don't kill Excel, learn how to play nicely with it.

Ask your team these questions and maybe its time to clean up (not remove) those spreadsheets.

  1. How many Excel errors (e.g REF#) exist?

  2. Have their spreadsheets slowed down over time ie take longer to complete task (maybe you have way too many vlookups)?

  3. How much wasted space exists in the workbooks? On average we see 100's or thousands of wasted cells when we review client workbooks. This slows down those workbooks even more.

  4. How many hardcoded formulas exist? (I bet lots if you have never asked or checked)

  5. How many external workbooks links exist? (Sadly I see way too many and this makes managing a nightmare)

Unfortunately, many teams cannot clearly quantify these numbers but almost every team know they do exist. 

Being aware of and focusing on fixing these issues is the first step.

How did things get so bad? 

Unfortunately, there is not enough focus on the basic fundamentals of using Excel properly.

No adoption of standards or good hygiene with spreadsheets.

So many revert to, let us just kill Excel and hopefully, all those problems go away...only to put the teams' ability to make dynamic decisions (what ifs) even further back in the revolutionary journey that's needed.

From spreadsheeting to financial modelling is a very important step for our teams to make.

Killing Excel is not treating the root cause but only the symptom and will fail long term.

In periods of high uncertainty, this is like asking a cyclist to continue riding without brakes.

It won't take long for a serious problem to arise as the conditions change to a downhill.

In 2020 we heard about teams that were using multi-million dollar planning and forecasting systems having to revert back to Excel to perform scenario analysis. 

Those numbers were then uploaded into what's now an expensive storage system for the forecasts.

It got this bad because we have not invested in the right skills for our teams and put technology ahead of people skills. 

Focus on investing in large systems superseding good Excel skills is not strategically smart.

We expect our teams to learn and be self-motivated to improve whilst expecting them to still do their day jobs. This isn't fair or realistic.

Sound familiar?

Let's set-up the team for success, not a failure, by enabling them to do awesome work.

So what is the path forward?

When you have a problem (eg health issue)? You get it checked out (diagnosis) by an expert (doctor).

Understanding the problem, rather than making assumptions (like Excel is the problem), prevents the issues from getting worse.

Killing Excel (or any spreadsheet system) which is a Finance professionals tool of the trade is deeply flawed.

We have recently commenced a number of diagnostics for potential clients to help them answer the questions above.

We also shared (and are now resharing) a 1-way cash flow model to help people really tangibly get their hands on what a well-built model looks like.

But here are a few free tips! 

  1. Keeping the good of Excel and removing/ redesigning those processes that should not be done in Excel is the answer.

  2. Excel used as a quasi database is still a big problem that can be solved.

  3. Once you understand your problems the solutions are easier to design.

  4. At the very least helping the team lift their Excel skills is a key ingredient to success.

  5. Showing them the pathway to success using a roadmap of how you intend to fix their problems is a sure way to win their approval.

  6. Start small, fail early, aim for quick value realisation on an agile basis and expand from there.

  7. Once again we are sharing our free 1-way cash flow model with those wanting to step up in 2021 in financial modelling. You can download it here from Eloquens. Use the discount code FREE2021

  8. Use this holiday break to make a start in developing your financial modelling skills. If you want to learn more about financial modelling read some past blogs or take a look at the Model Citizn website for some example models.

  9. If you want to find out more and see the recent article series on spreadsheeting to financial modelling it can be viewed in the Financial Modelling App

Stay tuned for more in 2021!