Traditionally, the go-to software for financial modeling has been Microsoft Excel. Companies, big or small, have been using Excel to do their financial forecasting, reporting, and budgeting for years.

And there’s a good reason for that – Excel is relatively easy to use and ubiquitous. Moreover, most people already know how to use Excel to a certain extent, so there’s no need for extra training.

While Excel is a powerful tool, startup founders tend to make certain mistakes when using it for financial modeling. We’ll look at them in this article.

Mistakes Startups Make When Using MS Excel

MS Excel might be the most popular software for financial modeling, but that doesn’t mean everyone knows how to use it in the best possible way. Here are some common mistakes startup founders make when using it for financial modeling.

Poorly Formatting

Poorly formatted Excel models can be hard to read and understand. A common mistake is not to use consistent formatting throughout the model.

For example, each section of the model should be clearly labeled and easy to find. The same goes for assumptions and key inputs. If these are not clearly labeled, it can be difficult to figure out what is happening in the model.

Another common mistake is to use too many colors and different fonts. If you have a different font in each sheet, it can make the model very hard to read.

It’s also important to use good layouts and spacing. Models that are crammed full of numbers can be difficult to read and understand. Leaving some blank space can help make the model more readable.

Not Using Shortcuts

Excel has a lot of shortcuts that can save you time. For example, you can use the “Paste Special” shortcut to quickly paste only the values from one cell to another.

You can also use the “Format as Table” shortcut to format a range of cells as a table. These shortcuts are helpful if you want to add filters or sort the data in your model quickly. But since most startup founders are working with Excel for the first time, they often don’t know about these features.

Making the Model Too Complex

A large Excel file is bound to get slow, especially when you start adding more and more features to it. At a certain point, it becomes so slow that it’s hard to make changes or even run simulations. When you’re trying to iterate quickly on your model, this can be a huge hindrance.

It’s also challenging to keep track of all the different versions of your model. Even if you use version control, it’s easy to lose track of relevant versions. In addition, the lack of control can lead to errors in your model that are hard to track down and fix.

Just because you can do anything in Excel doesn’t mean you should do it all. It takes good judgment to know what to keep and what to leave out.

The goal is to find the right balance between a model that is too simple and one that is too complex. However, lacking skills in startup founders and in-house finance teams often result in complicated and overwhelming models. 

Error-Prone DIY Approach

ACCA research found that 90% of spreadsheets have serious errors. Finance teams who’re new to financial modeling are even more susceptible to human error due to lack of skill and expertise.

When multiple people are working on the same file, it’s easy to accidentally overwrite someone’s work or make other changes that can break the model. It’s also challenging to keep track of changes and see who made them.

What’s a Better Alternative to a DIY Excel Approach?

While DIY Excel use might work for smaller and simpler models, startups that want to create pitch deck-ready financial models should opt for expert-led customization.

It’s best to let third-party professionals handle the heavy lifting when building out more complex financial projections. Not only will this save you time, but it will also ensure your models are error-free and easy to understand.

Financial models tailored to a startup’s needs and current standing in its business journey have the following benefits.

Dynamic Assumptions

Startups need to be able to change their assumptions on the fly and see how it affects their business. With a custom financial model, you can create dynamic assumptions that change throughout the model as you input new data.

Since there’s a looming threat of an inflationary period these days, startups can use a dynamic inflation assumption to see how different rates will affect their business. The same applies to government regulations, taxes, and other important factors that are difficult to predict.

Flexible Outputs

A good financial model should be flexible enough to generate different outputs depending on the user’s needs. For example, a startup might want to see how its business will perform under different scenarios.

A professionally-built custom model can show you how your business will do under best-case, worst-case, and most-likely scenarios. 

Flexibility is especially important for startups because they are often operating in uncharted territory. They have to experiment with different assumptions and see how they will affect their business.

Summary Dashboards

Most investors spend 2 minutes and 28 seconds per pitch deck. They don’t have the time to go through all the nitty-gritty details of your financial model.

That’s why it’s important to have a summary dashboard that contains all the key information that investors need to know. Financial experts can create summary dashboards with charts and graphs in a custom financial model. That allows you to present the information in a concise yet comprehensive way.

Let Professionals Create Excel-Based Customized Financial Models for Your Startup

Early-stage startups need to tell a story with their data — something that would interest the investors. That’s why a well-crafted financial model is essential.

Numberly helps early-stage founders create Excel-based financial models that reflect the company’s individual vision and financial standing per its maturity and sector. Since our models are made especially for your business, they do not contain the overwhelming features of a generic model.

Besides company valuation and financial statements, our models also have a summary dashboard that investors can use to learn the key points about your company. Check out this walkthrough of our financial model to understand how we make them investor and startup-friendly.

Intrigued? Schedule a free call to learn how we can help you tell a compelling story.