We’ve seen hundreds of spreadsheets, and, frankly, some are just painful to look at. So what makes a good financial spreadsheet?
In our experience, an excellent financial model is both “correct” and “user-friendly,” and typically exhibits the following characteristics:
- Generates useful insights that the intended audience(s) can quickly grasp
- Engenders confidence that the model is working as intended
- Easily understood and manipulated by its intended audience(s) without requiring extensive modeling experience (e.g., all assumptions/inputs are segregated and identified, rather than buried within formulas)
- Easily modified and maintained by its owner as the underlying conditions change
- Focuses on the big picture and gives priority to the most material aspects of the business by employing appropriate simplifying assumptions and by relegating details to separate but related sub-models
- Based on reasonable and justifiable assumptions
- Based on logically correct economic and financial principles
- Avoids errors in implementation, such as incorrect or overly complex formulas
Quite often, it is difficult for the author of a spreadsheet to look at their own work objectively and decide whether or not it meets these criteria. When in doubt, have a colleague perform a thorough audit of your work before showing it to your intended audience. This can help identify calculation and benchmarking errors. Market research sources are often conflicting, so make sure that you check multiple reports and understand why they are different. See Top 5 Mistakes in Financial Projections.
Related Services: Financial Forecasting.