Spreadsheets for Startups and New Business Plans

What Is a Department?

This sounds like such a simple question, but it is not. A wrong answer can result in signficant model re-engineering at the worst possible time.

Departments exist for two reasons. The obvious one is that departments are the classic technique used to partition expenses into categories that define spending such as development or marketing. The second reason is to provide a framework for expense management. If you do get funded, your model becomes your budget and investors will hold you to your spending plan. Department worksheets become spending roadmaps for departmental executives. The granularity caused by detailed spending management can result in too many expense categories on the P&L. Sometimes the model has to stop short of keeping every manager's expense structure in a separate department. Sub-departments in a subordinate model might make more sense if this is important.

From a modeling standpoint, you want as few departments as possible to keep it simple to make quick changes at the request of management and potential investors.

posted by Scott Clyde @ 9:19 PM