About Excel and Your Business Plan

I was just browsing the web with my laptop on a Sunday afternoon, half watching football, when I caught a LinkedIn question about business plan software. “Just use Excel and do your own,” the answer says.

“Yeah, right,” as one of my daughters used to say, rolling her eyes, when she was still a teenager, “and oh, brother.”

Use Excel if and only if you know spreadsheets well, and you know finance well, and you want to spend 20, 40 or more hours saving yourself about $100.

You may think of it as just a few simple lists, but you deserve better. Consider what it takes to make the leap between sales projections and expense budget to actually working on cash flow:

• Sales don’t mean you get the money. When you sell to a business you leave an invoice and wait to get paid. How is your Excel model going to deal with the cash implications of waiting for money owed? Are you going to model the flow from sales to accounts receivable to cash? Collection days?
• Costs of sales don’t mean you pay for them right then. You might have paid those costs months ago, as inventory. Are you going to model inventory turnover, and the cash implications of that?
• Expenses don’t necessarily mean you’ve paid those bills. Most businesses wait awhile before paying outstanding invoices. So you have to model payments and payment delays, and the cash implications of that.
• You need to plan for starting costs, which include expenses that go into one place and assets in another. Or if you have an existing business, how do you start the balance?
• Taking out a loan gives you money that doesn’t show up in profit and loss, and repaying it doesn’t show up in profit and loss, but the interest involved does show up in profit and loss. When you get a new loan, you bring in cash but interest expenses increase. You have to model that, too.

I realize that I’m getting dangerously close to a sales pitch for Business Plan Pro here, and I try to avoid sales pitches on this blog. But I feel that it’s unfair to just ignore this problem and pretend that people aren’t giving each other bad advice on this point.

It’s not like Business Plan Pro is just a black box; type assumptions in and projections come out. It’s built around a spreadsheet-like view so you can see what you’re getting, and it’s fully documented so you can see how the assumptions come together and how it works. And it’s productized, so it’s mathematically and financially correct.

Don’t get me wrong: Excel is great as an application language. I’ve been working with it since the first version, Mac only, in the early 1980s. I couldn’t live without it. I couldn’t have developed Business Plan Pro without it.

But you don’t have to do all of that all over again, by yourself. Don’t reinvent the wheel. Work on your plan content instead, the core assumptions and understanding the implications of your assumptions in the financial model. You don’t have to build a car to drive one.

And if that’s a sales pitch, I apologize. If you read this blog regularly you know it’s not my normal topic. I do get frustrated, though, with this kind of misinformation; and if you’re interested in starting and/or growing a business, then this is something you probably want to think about.

Tagged as: business plan, business plan in Excel, business plan pro, business plan spreadsheets, excel, spreadsheets