Most finance professionals have been accustomed to regular use of spreadsheets throughout their career – but as technology advances rapidly, the question has been raised: will finance chiefs ever experience life without spreadsheets?

Spreadsheets are pervasive digital tools, bundled together with millions of computers around the world, and provide solutions for a wide range of issues, from visualising results, to designing questionnaires and managing large data sets. Their flexibility and ease of use are just two reasons why we are likely to see spreadsheets continue to be an essential business tool. 

The first spreadsheet was a program called LANPAR which ran on mainframe computers in 1969, and by 1979 a spreadsheet called VisiCalc (short for “visual calculator”) was developed for Apple computers. Four decades on, spreadsheets remain a very useful business tool.

The way spreadsheets are used will vary with the size of a business, the industry it operates within and the needs of the company's operational leaders. New digital tools are available to enhance the effectiveness of spreadsheets, and the utility and popularity of spreadsheets in the finance function is set to continue into the future. 

How are spreadsheets still useful?

CPA Lynda James runs Valo Financial. She says spreadsheets come into their own when a business has highly complex operations. Such firms generally have many channels of income and many avenues in which a product or service is sold. They also have varying levels of margins and prices, and different product variations.

“In this instance, it can be difficult and expensive to have a database pull all this information together because the environment is so dynamic and the source information comes from many different programs,” she says. “If CFOs want the information grouped together, one system usually can't cope. However, spreadsheets can as they are able to collate internal source documents and external reports to provide a holistic perspective around the health of a business.” This flexibility is a key reason why spreadsheets will continue to be used.

Another important and ongoing use for spreadsheets involves forecasting. Many management accountants and business analysts use retrospective data reports that are manipulated in spreadsheets to produce forecast and scenario analysis for particular variables a business may be considering.

“Whether these variables include increasing sales via different channels or introducing a new product or offer, accountants can easily use spreadsheets to project a possible outcome and adjust pricing or volume accordingly to work out the best way to reach a financial goal or sales target,” James says.

Medium-sized businesses, where larger volumes of data are not as common, tend to rely on spreadsheets to help CFOs gain an understanding of the health of their business.

“Finance chiefs can easily download reports in CSV format from bookkeeping packages and change variables to work out how to enhance profits or sell more products,” James says.

“Using a spreadsheet for these types of scenarios is affordable and easy. It also becomes to some degree a living document for the business owner, unlike standardised reporting from software,” she adds.

There's an opportunity to improve the financial literacy levels of people in the finance team, especially new hires, with spreadsheets.

“I've found customised financial spreadsheets are a great way to show people information at a level they understand,” she says. “I then slowly increase the complexity or change the key performance indicators as their knowledge grows so they can make better business financial decisions.”

Spreadsheets are improving but require good financial understanding

Standardised financial reporting has improved as bookkeeping systems advance. But without a good financial understanding it can be difficult for finance teams to fully appreciate what they're seeing in a spreadsheet.

Having an experienced accountant build a customised spreadsheet, which includes key performance indicators, is invaluable, says James. She adds that these performance indicators could include a monthly summary that highlights the key numbers to watch and track, and which also act as a “red flag” for when KPIs move in an unexpected way.

“The ability to compare KPIs, such as the average cost of goods sold or the average sales revenue of goods sold, are not typically available with standardised reports,” she says. “Also, there is some sales data that is never entered into bookkeeping software, such as when your e-commerce website or store 'cash register' is not linked to your bookkeeping software.”

James says without knowing this information it's difficult to compare what the business sells per item, sales revenue per item and direct and operational costs per item.

“These calculations tell a good story of what is happening in your business each month,” she says.

When should other technology be used?

While spreadsheets are great at showing the numbers, add-ons to bookkeeping packages and other reporting tools such as Power BI may provide a better visual representation of figures.

James says they also offer automation features that can extract data, feed it into customised reporting outputs and send the information to stakeholders.

“If you have good source data this can be a big time-saver, although you generally need a good analyst to set this up,” she says. “In Excel or another program, you would need to build the graphs and charts yourself.”

The growing use of technology within bookkeeping systems and accounting packages is helping CFOs obtain more clear, accurate and timely information about their business. James says these innovations have been fantastic for finance teams.

“The industry is changing for the better as technology evolves,” she says. “Digital tools are leading to the more routine tasks such as data inputting and compliance becoming redundant. This means accountants can focus more on providing strategic advice.”

James adds a report can tell CFOs how and when money has been earned, and eventually how much tax is needed to be paid.

“Accountants can help finance chiefs to not only expand and grow their business, but to create a sustainable income,” James says. “And spreadsheets are one tool that continues to help all firms future-proof their business.”