All you need to know when choosing financial forecasting software for your start-up or business
When it comes to financial forecasting software, we often think of Excel as king. It’s a great piece of software that makes the investment world go round. There are, however, two problems that Excel consistently presents when used for financial forecasting;
- To use it, you’ve got to understand it. To create forecasts with it, you’ve got to be fluent in it.
- There’s no version control between users; so you’ve got to be able to translate different spreadsheets.
Understanding Excel
It takes a good couple of years to master the important tools you need to handle big chunks of data, and work across multiple spreadsheets to produce numbers that say “this business is worth-it, invest in me!”
One small edit can set an entire spreadsheet into a state of #REF! or #NULL! or #VALUE!
Many of us first encounter Excel in its blank form, offering a plethora of possibilities, but no real clear guide on where to begin, how to build forecast templates or what to aim for.
Founders often lean on this software to build their financial forecasts, yet whilst they may be experts in fashion, marketing, gaming, tech, or even fintech, not many come with a degree in Excel knowledge and application.
This means the first of the two hurdles that Excel presents is really quite massive: where do you start?
Excel Alternatives
1. Templates 📏
There are easily over 1,000 templates offering different ways for displaying and calculating your financial forecasts in Excel. A simpler option? Don’t use it. Many advisors simply ‘shoe-horn’ a business into a model that isn’t fit for purpose.
2. Advisors 🤵
For individuals who can’t find templates and turned instead to advisors, this is a solution of a much greater expense and you will never learn the context or drivers of your forecasts. Months later, a founder returns, requesting updates on their model, and the advisor will usually have to start all over again—for a fee.
3. Google Sheets 📉
Essentially, an Excel with collaboration options, Google Sheets is still as complicated to learn. Plus, the collaboration options are a basic functionality that can actually add more chaos than direction (“who deleted the data out of column J??!”).
Financial Apps
There are some great apps and websites available to help you figure out your numbers and continuously manage them. Because, let’s face it, numbers are never static. They change, one day, one week, one year, to the next. And your financial forecasts and pitch decks will have to change too.
We at Numberslides, offer a much better short-term and long-term alternative. Anyone can log in, add their numbers, and populate their own financial models. There’s no need for financial or Excel knowledge. Instead, the platform is run on simple coding programs, allowing users to input data and quickly work out how much funding they’ll need, or what their cash flow forecast will look like.
The Benefits of Using a Financial Forecasting Platform
There are three key benefits of using financial forecasting platforms instead of advisors and Excel spreadsheets.
1. Built-in Market Sensitivity Analysis 🔬
This is a really important added benefit: relevant market context. Many assumptions that are made in financial models can be simply plucked out of the air when actually, there’s usually a benchmark for this data that can be found in the market or extracted using other supporting information.
Financial modelling software takes these contextual benchmarks and uses them to offer your financial plan a sensitivity analysis: in the real world, do these numbers look right? Excel spreadsheets can’t do that, and advisors can only offer a static screenshot of the market at the time that they are consulted. Instead, software can continuously assess market conditions and help users benchmark their predicted financial performance against a valuable context.
2. Reduce Human and Software Errors in Financial Forecasting 🙅♀️
Even the most adept individuals, including accountants, founders, advisors, and CFOs cannot escape the reality that people make mistakes.
Every spreadsheet can be categorised into one of two types: the ones with mistakes, and the ones where mistakes haven’t been found yet. These can either be human error, or a problem with the software or template. In October 2020, some 16,000 positive Covid-19 test results were lost by the British Government when Excel simply ran out of rows.
Errors in software are not uncommon. Human errors are guaranteed.
Most financial forecasting software uses simple back-end coding and user-friendly front-end data editors that no one can accidentally alter. Some financial forecasting also includes a sensitivity analysis, which helps highlight if you’ve put in a few wrong numbers.
3. Build a Financial Forecast You Can Understand 🔎
It’s one thing to be able to define EBITDA (Earnings Before Interest Taxation Depreciation & Appreciation), but do you really know how it will impact your cash bottom line? Advisors may have insights and some excel templates may include predefined numbers for you to use, but without fully understanding it, your financial forecast isn’t investor proof; one tricky question and you’re left utterly confused.
Give up the Google search and instead focus on your business plan and your numbers.
Financial Modelling Software Saves Your Data, Forever
Let’s say founder Tom finds an advisor Jackie and asks her to build a model for his new business. Jackie builds a model, explains the model to Tom, who loves it, and he goes on his way. Three months down the line, the market changes. Tom needs a new pitch deck backed by updated financial models. He returns to the advisor, who has worked on hundreds of financial models since creating the one for Tom. Instead of simply tabulating some new numbers, Jackie must review the market, review the model, review the business plan, and then repopulate the model. This takes time, and it is likely that Tom will be forced to repeat these steps again in the future.
Financial Forecasting Software Is Expert-friendly
It’s not just founders and CFOs that struggle with Excel daily. Whilst expert modellers may be able to create financial forecasts in their sleep; time and collaboration present two big challenges. Financial forecasting software can reduce the time needed to create a model, with a simple input layout, and also offers a collaborative workspace, allowing modellers to share and build their model collectively.
Financial Modelling Software Is Investor-friendly
Let’s assume an investor looks at 500 pitches a week (at least). Of those, he deep dives into 100 of them. That’s 100 excel sheets, all different in layout, colour, and model. There’s no standardization which means the investor must re-learn how to read each model every time they open Excel.
Financial modelling software offers the standardisation they need, meaning all outputs look the same, which is greatly appealing to investors who aren’t looking to judge the colours, but really want to understand the numbers. Users of financial forecasting software can share their financial models and pitches, knowing that it makes sense to them and that the investor can get to the bottom line quickly.
