Still Using Spreadsheets for Capitalization Tables? Here are 5 Good Reasons to Stop.

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I was at a law firm the other day listening to three attorneys debate whether their spreadsheets were a satisfactory tool for doing their transactional clients' capitalization tables. The first attorney (we'll call her Susan) said that her spreadsheets were fine. Her stock plan administration worksheets rolled up automatically into a few other worksheets for a client's capitalization tables and those worksheets could show the data by class, type, date, and fully-diluted.

It all sounded very complicated, but I was impressed. The next attorney (we'll call her Ann) said that her spreadsheets could track the stock and option data, but could not display it by date in the past or in the future. Also, her spreadsheets could not handle option vesting schedules. The third attorney (“Eric”) asked if Ann used the same spreadsheet templates as Susan. Ann said that her spreadsheets were similar to Susan's, but with some variations. Eric admitted that he’s basically a spreadsheet novice.

The reason we were discussing capitalization tables is that they are critical decision-making tools for CFOs, investors, board members, attorneys and clients – and they need to be 100% accurate. Anything less is bound to make someone look very bad. Sometimes the problem is as simple as two people with two different versions of the same stock issuance or option grant data.

As the innocent bystander in this rousing discussion, I commented that it sounded like everyone was doing the record tracking and corresponding capitalization tables slightly differently. Then I suggested they consider an online, consolidated system for stock plan administration – for five pretty compelling reasons:

Susan objected only when I mentioned that a centralized system would reduce the risk of errors. She insisted that her capitalization tables were accurate. And while I had no reason to doubt that, I asked whether her spreadsheets could handle changes in the preferred stock conversion ratios, for instance, or a stock split. Susan replied with an emphatic “yes." She explained that she just copied and pasted the new ratio down the entire column and the next cell generated the updated calculation.

  1. Centralize and Share Data: If data needed for capitalization tables is in one place – rather than in multiple copies of spreadsheets – there are fewer discrepancies. Centralized online data can also be shared more easily.
  2. Simplify Data Entry: Data can be entered more accurately if all you have to think about is point-and-click. It means less typing and no tedious copying and pasting.
  3. Automate Calculations and Reports: A computer-based system will never make a mistake, no matter how difficult the calculation.
  4. Increase Standardization and Best Practices: If everyone is doing tasks the same way, you have the ability to set best practice standards and ensure consistency enterprise-wide.
  5. Connect Data to Documents and Accounting: In a consolidated system, it is much easier to link related stock plan administration data and documents, such as Board minutes to option grants or grant data to complex FAS 123R reporting.

I told Susan that this was precisely where errors happen. In fact, I saw a reference recently to a KPMG report that suggested the vast majority of operating spreadsheets used in financial reporting contain material errors – which is consistent with what we hear from CFOs every day. Even when they have not yet encountered problems, these CFOs say that they are ever-fearful that their resident “spreadsheet guru” might leave (and take their ability to use complex and connected spreadsheets with them).

It's not that spreadsheets are bad or can't handle complex calculations. Of course they can. It's just that the standardization and simplification benefits of an online stock plan administration application are overwhelming. This is particularly true when you consider many different people, using many different spreadsheets, to track many different equity transactions, for many different companies that each have complex capital structures. The risk that an error may creep into the process and flow through the entire system is tremendously high. Another benefit of a web-based system is the opportunity to save money by redirecting routine tasks to a lesser-skilled and lower-cost person.

The next time you're working with complicated spreadsheets for your stock plan administration and capitalization tables, consider this: What if you could simplify, standardize, and centralize the work while creating a process that costs less and increases accuracy? When you're ready to stop worrying about hidden errors or copying the right numbers into the right cell, take a look at Two Step's Equity Focus system to find out what an online, consolidated equity management application could do for you. After all, you have far more important things to worry about these days.

Gary D. Levine, President and CEO
Two Step Software, Inc.
blog.twostep.com

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