small business finance spreadsheet

small business finance spreadsheet

Optimizing Small Business Finance Management Through Spreadsheet Tools

1. Introduction to Small Business Finance

Drawing on this, I suggest a small business manager and operations controller approach financial management through various spreadsheet tools that require only basic spreadsheet information input sets to provide crucial decision financial results. The information is presented through different, specifically designed, straightforward and user-friendly general spreadsheet templates. Each workbook provides guidance with commentary for each activity, guidance, planning results, and strategic warnings about planned activities, limiting the risk of making suddenly unprofitable decisions because they have been elaborated without previous financial consideration. By working with all specific tools, small business and startup owners and managers will be able to appreciate easy access to quick financial information for crucial decision-making throughout the business cycle.

Since finance management is one of the key elements to ensure a venture runs smoothly and grows efficiently, the importance of developing spreadsheet tools to maximize and optimize such financial management in a small business or startup cannot be emphasized enough. Stipulations of all financial processes including sales projection, expense budgeting, cost of goods sold calculation to assess profitability, and other processes unique to the business are part of the vital ongoing financial activities. Return on investment from current product lines, assessment of the added value of a given marketing activity, and employee efficiency can also be prepared through spreadsheet tools specifically designed to structure variables and provide quick informative planning results.

2. Benefits of Using Spreadsheets for Financial Management

The use of spreadsheets is beneficial for small business organizations because they are easy to implement and use. Spreadsheets are also affordable. They are part of the Microsoft Office productivity suite that is commonly used by business workers. Many business workers have the rudimentary skills needed to create business spreadsheets. Since small business organizations may not have dedicated technical staff, business workers may have little choice but to create and manage the spreadsheets that the organization uses. Small businesses can also use affordable or free spreadsheet applications that have the necessary features and functionalities. In addition, there are professional independent consultants who specialize in creating enterprise-quality business spreadsheets.

Large business organizations use complex accounting and enterprise resource planning applications to address their quantitative financial information management needs. Since small business organizations have limited resources to acquire and implement such applications, they rely primarily on spreadsheets to address these needs. A spreadsheet is a digital file used to organize, analyze, and report quantitative information, i.e. numbers and dates. Spreadsheet applications, such as Microsoft Excel, have a variety of features and functionalities that allow for data to be organized, analyzed, and dynamically updated. Most small business organizations use Microsoft Excel to create the spreadsheets that they use to manage their financial information.

3. Key Components of an Effective Small Business Finance Spreadsheet

An effective small business finance spreadsheet is a combination of basic accounting and financial modeling methods. A deeper understanding and application of the key design features accurately gives the spreadsheet the ability to track and effectively maximize and realize the potential for (1) sales growth, (2) increase in accounts receivable collection, and the expansion of (3) cash reserves, (4) inventories, and (5) accounts payable management policy. The spreadsheet scorecards enable early warning against unfavorable movement in the key ratio targets that measure a company’s management of its annuity, hint manager of emergency finance needs, report the financial results of the utilization of the company’s assets, or prepare the management, the business, and the associated financing needs throughout the year. The spreadsheet minimizes the occurrence of a cash development but high financing needs at the end of the business year and increases the cash share of the business portfolio in relation to that of debt.

This work provides details of the key components of an effective small business finance spreadsheet. The review of the literature and the expertise of the author and other individuals who have utilized different finance spreadsheets over the years have shown that small business finance management often includes monitoring the inherent qualities (strength and weakness) that determine the financial health and profitability of a business. It also involves tracking the financial transactions, the utilization of the funds by the owner and the effects of the decisions made on the inherent qualities. The favorable yield of the spreadsheet as a finance manager is directly proportional to the capacity of the tool to effectively analyze and communicate the quality transactions and implementation benchmarks achieved in the business.

4. Best Practices for Creating and Maintaining a Small Business Finance Spreadsheet

Unfortunately, more than about 30% of the small business people who create spreadsheets like these ignore this best practice in data entry. For example, about once a month a user would send a support email asking why sales calculation in a with-totals data table was showing low values. Investigation would show that they were calculating individual working periods’ sales amounts as, for example, $2000 in column B and $3000 in column D, but the totals were coming out as 2000 in column B and 12000 in column D, because they entered the other period sales amounts as $5000 and $9000, respectively. A good accounting software package can often understand these types of data inconsistencies and fix them; general purpose spreadsheet systems do not typically attempt to do this (users are expected to do the data scrubbing themselves).

Before we pivot readers to the detailed work and expense tracking and cash forecasting tools in tabs 2 and 3 of this workbook, we will introduce best practices for spreadsheet finance tools usage. The lifeblood of any spreadsheet tool is the data table. Consistency is key, whether entering data into the data table directly or importing it from a related business system or service. Data type consistency means no decimal points and currency marks in one column, only decimals in another, and dates combined with and not contained in decimal values in the same column. Data type consistency and column independence can utilize 95-100% of the rich functionality of Excel, but ignoring them robs the user of most of the capability.

5. Case Studies and Real-Life Examples of Successful Small Business Finance Spreadsheets

First National Bank of Northfield was formed in 1873 and has a long history of integrity, service and transparency which makes it successful and very strong. The first spreadsheet is used by a very successful small-community bank and is a derivative of the input and output model mentioned by Rice in Option Markets, Cambridge University Press, 108-109 2013, and from his work on random number generation. The bank Operational Risk Management in Spreadsheet provides estimates of losses from the eight risk elements. The second spreadsheet is used by a small successful nonpension investment pool consultant named Norman Pearce. Its main goal is to be a profit landscape estimator at different time horizons and it seems to offer very attractive practical possibilities. Its backtesting optimizations are carried out by a related spreadsheet. The next section offers a spreadsheet used by a real estate group to assess real estate potential for development analysis and sales income.

In this section, we provide case studies and real-life scenarios on how various organizations use spreadsheets for finance management in small businesses. The examples are arranged by the spreadsheet tools they use. They range from accounting to investment to ratio calculation and risk management. The beauty of a spreadsheet such as this is that they are set up and available for use in real time. Where necessary, noticeable improvements that have definitive cost implications are discussed as well as possible use for research purposes. That is, these spreadsheets, because of their design and scale, offer innovative ways to contribute to the small business academic and practitioner finance community.