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2. Using a Computer for Financial Projections
A personal computer with appropriate software can help prepare financial projections. A computer-based model reduces the tedium of carrying out numerous repetitive calculations; simplifies the alteration of assumptions; and improves the presentation of results.
When using a computer, a manager or planner can utilize a spreadsheet to build a model from first principles. While the development of a spreadsheet model of a company's profit & loss account should be well within the capabilities of many managers, the development of an integrated and comprehensive financial planner is an infinitely more challenging, time consuming and difficult task. A manager must know when to draw the line between using a spreadsheet to plan and becoming a spreadsheet programmer.
As an alternative to a DIY model, a manager or entrepreneur can purchase a ready-made model which can be either (a) loaded as a template into a spreadsheet or (b) run as a stand-alone package.
The main advantage of building a bespoke model is that it can be fine- tuned to meet very specialized requirements. However, the drawback is that building a comprehensive, error-free and user-friendly financial model could require hundreds of hours of development and testing along with considerable programming and financial expertise. This work inevitably distracts from the real task of planning the business and begs the question as to why managers, entrepreneurs, advisers etc. should reinvent the wheel whenever a set of financial projections are required.