Declare Your Independence from Spreadsheets

By Aarthi Rayapura July 4, 2016

Now, granted, talking about gaining independence from something might qualify as a sore subject at the moment (Hi, England!), we’ll give it the ole’ patriotic try.

Let’s begin with a few queries:

  • Does your mound of spreadsheets track how your company recognizes revenue today and tomorrow, or are you still playing catch-up from a few years ago?
  • Do you have built-in fail-safe measures to prevent erroneous entries in your spreadsheets from causing catastrophic damage?
  • How many man-hours are required to (a) complete your close process and/or (b) make alterations when required?

The good news to the bad vibes likely produced if your answers to the above were along the lines of, “Uh oh, oh no and whoa,” is it won’t matter much anymore. Spreadsheets are on the way out as a reliable means of revenue management, and afflicted companies will be forced to seek alternatives.

Sure,” you say, “we’ve heard that before and we’ll hear it again.

What’s different this time around is the increased complexity in the new revenue recognition standards set for adoption in 2018. What was already a challenging process is now a full-blown four-alarm-fire of a problem for organizations lacking complete confidence in a standardized revenue solution and all surrounding components.

As noted in the recent CFO.com article by John McGaw and Jeff Johnson, both of EY, on the impact of these changes posed by the new guidance, “Clearly, companies are realizing the challenge will not be solved by a couple of their bright accounting staff working a few long nights and weekends to devise a new spreadsheet.

“This problem is far more complex and affects downstream systems used for management reporting, financial planning and, potentially, other functions dependent upon revenue data,” the article stated.

As we noted in this space not too long ago, a recently released global survey, “The New World of Revenue Management,” by the professional network Institute of Management Accountants (IMA) and sponsored by FinancialForce, indicated that although spreadsheets were still found to be the most commonly used method of revenue recognition tracking, more and more corporations were coming to the obvious conclusion the upcoming new standards highlighted the inadequacy of this method.

The survey – conducted last year involving CFOs, controllers, directors and others – indicated the highest level of satisfaction (40% “very satisfied”) came from respondents using ERP or purpose-built accounting applications to track revenue. The reason for that satisfaction? Several noted no longer having to worry about the fragility of massive spreadsheets.

As for ERP solutions, need we remind you? OK, we need. Wait, we’ll let others do it for us.

“ERP systems were generally not designed to perform complex revenue accounting.”

– McGaw and Johnson in the previously-referenced CFO.com piece.

Consider other potential risks in relying on spreadsheets for critical business management:

  • No integration – Companies using spreadsheets and other resources to keep track of finances suffer from a lack of integration, and with a lack of integration comes a lack of true business intelligence.
  • No one-stop-shop – If you’re using spreadsheets, chances are you have more than one version floating around, with inconsistent data surely in tow. That’s because spreadsheets aren’t locked down to a single, unified source. Alterations which aren’t made across the board on all versions guarantee serious variance and assure you of one thing – unnoticed errors are sure to slip on by.
  • Yes, it’ll become a time suck – OK, we’ll give you this – spreadsheets are fairly quick and easy when it comes to set-up. Fair enough. However, when those same heavily relied-upon sheets become increasingly used in collaborative, repetitive enterprise processes, consider the huge chunks of time wasted in consolidating, modifying and – yep – correcting those same spreadsheets.

Ventana Research concluded these same essential points in its report, “Five Costs and Perils of Spreadsheets for Business Analytics,” which, although dating back a few years, remains applicable today.

As the report pointed out, revenue recognition is a significant problem for corporations which process hundreds or thousands of orders monthly, with the necessity to account for and track each element of each contract, often including subscriptions, support and professional services. Orders which can span multiple years.

And yet the majority of firms still handle revenue recognition with spreadsheets? That was then, this should be now.

“Those that currently use desktop spreadsheets for planning and budgeting should consider adopting dedicated planning and budgeting software in order to cope effectively with the increased complexity of planning in this new environment,” said Robert Kugel, SVP and Research Director for Ventana Research, more recently of the ASC 606 onslaught.

We get it. Corporate finance departments have a love affair with spreadsheets. It’s hard to let go. It’s kind of like when Patrick Swayze sang that song, “She’s Like the Wind” in the movie, “Dirty Dancing,” about the potential dangers of giving in to love, when really it should be about the Swayze movie, “Road House,” and the need to finally kick spreadsheets to the curb, once and for all.

Yeah, we were just checking if you were still reading.

Happy Independence Day !