I Have Trust Issues With Beautiful Financial Models

I have trust issues with beautiful financial models.

Not because I don’t like them.

I do.

Give me clean tabs, consistent formatting, sensible colors and a model where I don’t need an archaeological expedition to find the assumptions.

I’m happy.

But I’ve been around Finance long enough to know that a beautiful spreadsheet and a good financial model are not necessarily the same thing.

Sometimes they’re not even particularly close.

There’s something about opening a perfectly formatted workbook that makes your brain relax.

Everything is organized.

The colors mean things.

There are dropdowns.

Maybe a dashboard.

Someone clearly knew what they were doing.

Then you find this:

12.0%

Blue font.

Assumption cell.

Okay.

Why 12%?

And suddenly the room gets a little less comfortable.

Excel can make almost anything look official

This may be one of Excel’s greatest talents.

Someone types 12% into a cell.

It flows through six worksheets.

It changes revenue.

Revenue changes gross profit.

Gross profit changes EBITDA.

Eventually 12% appears in a beautifully formatted chart in a PowerPoint deck.

By the time it reaches the executive meeting, 12% has acquired a suit and a LinkedIn profile.

It looks extremely employed.

There’s just one problem.

Nobody really knows where it came from.

Maybe someone made an educated estimate six months ago.

Maybe Sales suggested it.

Maybe it came from last year’s budget.

Maybe the person who originally entered it left the company.

My personal favorite explanation is:

“That’s what we’ve always used.”

Nothing makes me want to keep asking questions quite like discovering an assumption has apparently become company folklore.

And this is why I spend a surprising amount of time looking at the cells without formulas.

That’s where the humans are hiding.

The formulas aren’t always what worry me

Obviously, formulas matter.

I’ve seen enough broken formulas to maintain a healthy level of paranoia about those too.

But Excel will calculate a terrible assumption perfectly.

That’s the problem.

Tell Excel customer growth will be 18%, and Excel says:

Fine.

Tell it gross margin improves 300 basis points next year.

Sure.

Tell it we’re hiring 47 people.

Absolutely.

It will calculate salaries, payroll taxes, benefits and start dates down to an impressive level of precision.

Excel has absolutely no opinion about whether finding and onboarding 47 people in six months is remotely realistic.

That’s our job.

And I think Finance occasionally gets seduced by precision.

$4,728,391

looks very serious.

It may have started with three assumptions someone more or less guessed.

That’s the part I care about.

I have a few annoying questions

If you’ve ever built a model and had someone like me review it, you probably know where this is going.

I start asking questions.

Where did this assumption come from?

Who owns it?

What would have to happen operationally for it to be true?

What evidence supports it?

What happens if we’re wrong?

And occasionally my favorite:

Does anyone actually believe this?

That question doesn’t technically appear in most FP&A textbooks.

I still recommend it.

Because sometimes everyone involved knows an assumption is optimistic.

Sales knows it.

Operations knows it.

Finance knows it.

The CFO probably knows it.

Yet there it is in the model, enjoying all the rights and privileges of a real number.

That’s when the spreadsheet has stopped helping us think and started helping us avoid an uncomfortable conversation.

I’d rather have the uncomfortable conversation.

Strip it down

One of the simplest things you can do with a complicated model is temporarily make it boring.

Ignore the dashboard.

Ignore the charts.

Ignore the formatting.

Pull out the handful of assumptions actually driving the result.

Revenue growth: 15%

Price increase: 4%

Churn: 7%

New hires: 32

DSO: 45 days

Now look at them.

Suddenly there’s nowhere for them to hide.

This is where I want to spend time.

Why 15%?

Why 4%?

Why 32 people?

Why 45 days?

Not because every assumption needs a 40-page research paper attached to it.

Please don’t do that either.

But somebody should be able to explain why we believe it.

And “because that’s what the model says” is not an explanation.

The model says it because we told the model to say it.

Sometimes I think we forget that.

A model should show me where we’re uncertain

There’s another thing that makes me nervous.

A model where everything appears equally certain.

Businesses don’t work that way.

We might have signed contracts supporting part of next quarter’s revenue.

Pretty high confidence.

We might have a sales pipeline supporting another piece.

Less confidence.

Then somewhere farther out we’re estimating customer growth, hiring, pricing, retention and seventeen other things while pretending December is just as knowable as next Tuesday.

It isn’t.

That’s fine.

A forecast isn’t supposed to eliminate uncertainty.

If it could, I’d be writing this from a much larger house.

The job is to understand where the uncertainty lives.

Which assumptions could materially change the outcome?

Which ones are weak?

Which ones depend on several other things going right?

Which ones would actually change a decision?

That’s much more useful to me than pretending every cell deserves the same confidence because they’re all formatted the same way.

AI is going to make this problem more interesting

We’re entering a period where making finance work look impressive is getting very cheap.

AI can help format.

Build charts.

Write commentary.

Create presentations.

Summarize variances.

Eventually we’ll probably ask it to sit through the budget meeting for us.

I’m waiting patiently for that feature.

This doesn’t make Finance less valuable.

But I think it changes where our value sits.

If everyone can produce polished analysis quickly, polished analysis stops being particularly impressive.

The scarce thing becomes judgment.

Someone still has to ask:

Why do we believe this?

Does this make sense given what we’re hearing from the business?

What would prove us wrong?

Are we seeing a real trend or just timing?

What decision does this actually change?

AI can make a bad assumption look fantastic considerably faster than we used to.

That’s progress, technically.

Finance still has to recognize that it’s a bad assumption.

And yes, I still want the spreadsheet to be pretty

Every time I make this argument, I can practically hear someone preparing to send me the ugliest spreadsheet ever created as proof that formatting matters.

It does.

Please format your models.

I don’t want 14 tabs of black numbers on white backgrounds named Sheet1 through Sheet14.

I’m not an animal.

Good formatting makes thinking easier to follow.

It helps someone understand the model without having the creator sitting beside them narrating every click.

That’s valuable.

I just don’t want presentation doing work that the underlying thinking hasn’t earned.

So my order is pretty simple:

Get the thinking right.

Then make the thinking easy to understand.

Because I will happily admire your beautiful financial model.

I’ll compliment the dashboard.

I’ll appreciate the clean assumptions tab.

I’ll even respect the color scheme.

Then I’m probably going to click on that blue 12.0% cell and ask where it came from.

I can’t help myself.

My husband would probably tell you I do the same thing with good news at home.

Finance just gave me Excel so I could make it everybody else’s problem.