Insights

Private Equity’s long-running love/hate relationship with Excel and what to do about it.

It starts innocently enough.  Private equity firms adopt industry-standard productivity tools to support essential processes and Excel is overwhelmingly the tool of choice to start.  Executives track their contacts and analysts build complex acquisition models using Excel’s feature-rich capabilities.

But Excel use rarely stops there.  Something happens over time as the firm grows in size and complexity.  Contact lists among the firm’s partners evolve into pseudo or micro CRM systems.  Financial models become increasingly sophisticated and evolve into deal flow tools that further morph into data sources for calculating investor returns, ROI modeling and sometimes the basis for investor reports.

Many firms continue to use Excel in this way because it still works for them and provides a level of flexibility for their unstructured data capture.  But generally, it’s just a matter of time before the “Excel for everything” approach hits a wall.  The issue is that Excel was never intended as an enterprise software solution to suit the broad functionality and data security required for Private Equity.

Manually prepared spreadsheets tend to accumulate errors over time that can show up as errors in calculations and reports.  Using spreadsheets to store accounting data shared between multiple Excel files for investor reporting is also a major source of errors.  A recent private equity survey conducted by E&Y found that CFOs have come to realize that manual data entry and reporting via spreadsheet are not an effective use of resources — almost 80% of CFOs said that the use of spreadsheets as data sources was a top management concern.

The solution is not to get rid of Excel but to optimize it.  Once the firm’s Excel usage creeps into spreadsheets specially purposed for investor returns and as accounting data repositories, it’s time to think about a master data management approach to centralize the data and provide controls.  Establishing a rules-based system to understand how data is sourced and used across multiple processes will dramatically reduce data duplication and reporting errors.  Master data management ensures the correct data is used across multiple applications and systems, including spreadsheets, workflow management tools and other homegrown & 3rd party software.  The result is better data management with fewer errors from erroneous data reporting providing overall greater efficiencies for resources and time savings.

In the near future, a thorough understanding of the firm’s data flows will be essential to take advantage of more advanced technologies like machine learning and robotic process automation (RPA).  But Excel spreadsheets aren’t going away any time soon.  Neither are the complex calculations and reports that rely on accurate data pulled from spreadsheets and a multitude of other systems.

Simple solutions built on Excel may not provide the scalability to support future business growth and complexity. Optimizing Excel’s capabilities is a short-term objective worth considering.  PEs can immediately reduce reporting errors and decrease risks by taking a master data management approach. Use the power and flexibility of Excel for the solutions it was designed for and don’t let Excel drive your core enterprise solution as you grow your business.