November 14, 2022

5 Reasons Why Financial Modeling with Spreadsheets is Dangerous for Your Business

JP Morgan lost $6 billion due to a simple copy-paste error. Barclays bought 179 contracts they didn't want in an acquisition because of hidden cells. And RedEnvelope's CEO resigned after a 25% dip in share values when one number in one cell on one spreadsheet was miswritten.

Download NowWatch Now
5 Reasons Why Financial Modeling with Spreadsheets is Dangerous for Your Business
Ignacio Gassó
Co-founder & Chief Operation Officer
Share on social media

A surprising number of businesses continue to rely on spreadsheets like Excel for business financial modeling. But unfortunately, while Excel was one of the first databases available to the business world and continues to offer essential functions, it's also become incredibly dangerous. 

JP Morgan lost $6 billion due to a simple copy-paste error. Barclays bought 179 contracts they didn't want in an acquisition because of hidden cells. And RedEnvelope's CEO resigned after a 25% dip in share values when one number in one cell on one spreadsheet was miswritten.

So while we don't recommend ditching Excel altogether, it's essential to take a hard look at the evidence of significant losses over simple mistakes. Then look over many new solutions that easily safeguard against these expensive, dangerous mistakes.

Here are our top five dangers of using Excel for financial forecasts and modeling.

Danger One: Poor Collaboration Safeguards

Group work has never been more critical in the business world– but now those groups are spread across global offices, working from home, and freelancers. So companies can't rely on physical proximity of their teams. 

And while Excel does allow for remote work, it doesn't protect against "too many cooks in the kitchen." Sheets are often updated and maintained by many employees. Some create the sheet's structure and formulas, others input data, and everything in between.

But how can you protect against any single employee from changing something they shouldn't once they have edit access? Let alone a national or global team?

Our Recommendation:

Upgrade to financial software that inherently creates custom permissions, offers transparency to data changes, eliminates the need for custom financial formulas, and gives individual user accounts.

Danger Two: Low Accountability

If collaboration safeguards are an issue, then its partner lacks accountability. With so many people maintaining a single spreadsheet, who is ultimately responsible for ensuring correct work? Who is accountable for every copy and paste, for checking that cells are deleted rather than hidden?

You're already paying for the work to be done once. It's incredibly time-consuming and expensive to have work constantly double and triple-checked. But without multiple redundancies in your workflow, you put your finances at risk of simple manual errors.

Our Recommendation:

Switch to financial software that checks your data for you, with errors showing up quickly in visuals and charts. Let the software create and manage formulas and data input to reduce the number of people required to work directly with raw data. 

Instead, let your paid employees spend their time with essential tasks and leave redundant– but critical– tasks to machine processing.

Danger Three: Data Lags Behind

Real-time updates are the new expectation for the modern business world. Company leadership needs to be able to make a swift decision to respond to new opportunities or threats on a dime. Yet spreadsheets don't automatically link to bank accounts, investments, or other financial institutions to give live updates of balances and transactions. 

They also can't code transactions, use AI to speed the process, or automatically generate charts unless specifically coded to do so. 

Slow financial data creates unnecessary lags in financial decisions. It also creates a high dependency on financial employees to consistently keep data up-to-date and respond quickly to new situations.

Our Recommendation:

Use software with powerful third-party integration abilities, allowing your financial institutions, expense tracking, bookkeeping, and more to feed directly into your forecasts and modeling.

Danger Four: Data Security Threats

Data security is critical, and no one can be too careful. With the recent spike in ransomware attacks alone, companies need to take a hard look at their data security and policies. Particularly if the company has multiple employees using cloud-based spreadsheets. 

Spreadsheets have many collaborative limitations, like the ability to have meaningful conversations about data developments or strategies in the software. So these conversations often happen on other messaging platforms or via email. And these conversations often contain links to the software.

These methods create additional instances and opportunities for hackers to infiltrate your company's finances. So it's much safer to use a single software that allows for high-level encryption, unique logins, and hosted messaging.

Our Recommendation:

Use better software that promotes hosted messaging to keep financial conversations from texts, emails, and unsafe messaging. Create individual logins for all employees to ensure data security and increase accountability. 

Danger Five: Lack of Data Transparency

Finally, spreadsheets are often data-heavy and are not easily read by those outside the finance department. Since they have endless configurations and organization methods, each spreadsheet is unique to the thought process and preferences of the team that creates it. 

Yet, company leaders need access to up-to-date reports and financial visuals wherever they are. They also need continuity to their data, without significant shifts as employees turnover over the years.

Our Recommendation:

Use financial software that automatically generates preconfigured, user-friendly reports. This option will reduce strain on financial department resources, protect against employee turnover and shifting preferences, and give company leadership constant access to digestible information.

Update Your Tools for Safe Financial Modeling

You can never replace top talent in any critical company role. But excellent software and financial tools will increase job satisfaction, decrease costs, and protect your company from unnecessary risk. 

Great financial analysis software will use robust reporting, real-time updates, quality and access controls, and clear reports for empowered decision-making.

With Cofi, you are also able to visualize all scenarios simultaneously and also modify them based on other caveats. Ready to take the leap and level up your financial modeling?

Request a demo today!

The latest Cofi Insights, straight to your inbox

By clicking below, I agree to Privacy policy.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Start enjoying Cofi Now

Contact us today to see how the Cofi platform can help your organization leverage data to shift performance.

Get a demo