I am going to spend the better part of today building some models in Excel.  Much as I love Google Docs, for any serious model I still go back to Excel without regrets.  It is fast and versatile and I know it extremely well.

I see a fair number of business budgets and financial models built in Excel.  Many suffer from the same set of problems:

• Artificial precision: often there is an attempt to capture every line item down to office supplies – but those generally won’t make or break a business (unless you are in the office supplies business that is).

• Key assumptions not easily visible: the cells which contain the key assumptions (e.g. about drivers of revenue growth) should be clearly highlighted and/or gathered up in one place.

• Circular references: sometimes you can’t avoid having to do a “goal seek” but many models contain gratuitous circular references.  For instance, if you want to target a particular post investment option pool size, you can do that with a simple formula.  No circular reference required.
  
  

• Lack of sensitivities: no attempt to analyze how a small change in one of the key assumptions will impact outcomes.

• Deterministic: this is my biggest pet peeve.  It’s OK for something like a cap table for a specific round of financing.  But for any kind of projection you really want to look at a distribution of outcomes.

Now off to actually putting my models together!