The perils of consolidating financials in Excel



Excel is a fantastic tool for the finance professional. It allows for a reasonable amount of reporting, budgeting, analysis & forecasting. It is inexpensive, and is widely understood within the finance industry. This means that most employees are already trained and comfortable using it. These things make it a practical choice, at least until the business grows to a size where the problems of using excel start becoming evident. Financial consolidation can be complicated or simple, but for CFOs the overriding goal is always the same: faster and more efficient closes.

Once you begin adding complexity to the business with operations overseas, acquisitions of other businesses, or the in-depth reporting required to satisfy the interests of venture capitalists, regulators and internal stakeholders, excel for close management cannot keep up the pace. Has your company outgrown Excel for consolidation?

Let us take a look at some of Excel’s perils.

Time-consuming & tedious!

Manually creating reports on a monthly, quarterly or annual basis is incredibly time consuming and inefficient. Pulling together the vast array of financial information across multiple sources (entities, geographies, segments etc.) takes weeks to compile. Adding the accounting treatment to the consolidated information is time consuming. This has a significant impact on the ability to make the reports in a timely manner and then use it to make thoughtful decisions.

Data in Excel is error prone

The process of consolidating information in Excel is inherently manual. As long as the data volume or number of data sources is less, it can be kept reasonably accurate. However, as the number of data sources or data volume increases, it gets more and more error prone. Consolidating financial information across entities needs various levels of accounting treatment, viz. grouping of ledger accounts, forex translation, reclassification of accounts, eliminations, overhead cost allocation etc. Doing all of this in excel is of course inefficient but also inherently error prone. A simple “fat fingering” error could completely change the numbers that could not only lead to strategic decision making errors.

Also, the spreadsheets are not always validated properly. They are often reviewed by their own authors and are almost never subject to a peer review, or by someone completely independent due to lack of time and other such pressures. From an internal control perspective, this practice is a bad idea and causes so many spreadsheets to be flawed and without proper risk mitigating controls. Many companies proceed as if the spreadsheets are accurate, even though about 88% of all business spreadsheets used for close and consolidation contain errors. This could cause severe problems with the regulator if such errors are not caught on time.

Excel is not a database

Excel is spread-sheet software and not a database.One of the key inputs for decision making is comparing information across various reporting periods, viz. monthly data, YTD data, quarterly, consecutive reporting periods, corresponding periods in the previous year’s etc. The slicing and dicing of data across various reporting periods needs to be available quickly without having your accountant spend hours putting the data together. In most organisations, this is not the case. The accountant keeps digging data from various excel reports across various reporting periods, and tries to consolidate all the data that is required by the management.

Is your spreadsheet secure?

A spreadsheet can easily be emailed, which is a huge security risk. Spreadsheets are also easy to upload to consumer-grade cloud storage, such as Google Docs, which simply does not have the enterprise-grade security necessary when handling sensitive corporate documents.

In summary, you can’t help but conclude that Excel is time consuming as well as prone to material errors, especially if it is being used for financial consolidation and reporting. For that reason, a well-designed consolidation tool is much more preferable to using spreadsheets. Once such a database is established, it is much simpler to monitor and audit than with spreadsheets. If Excel isn’t handling it for your business anymore, it’s time to upgrade! The good news is that financial management software products have become more robust and these specifically designed products for the CFO office is everything that Excel is not, when it comes to accuracy, security and time saving!