STEP-BY-STEP GUIDE TO

USING DATA VALIDATION

IN EXCEL
Data accuracy and integrity are paramount in the fast-paced world
of investment banking. High-quality data input is crucial for
financial models and transactions, as even minor errors can result
in significant consequences. Solid data validation techniques in
Excel are vital for finance professionals to uphold accuracy and
efficiency.
In this guide, we will explore practical Excel data validation
applications tailored to investment bankers. Learn how to enhance
the reliability and consistency of financial models using data
validation and a sample dataset of investment deals through step-
by-step examples.
TABLE OF CONTENTS
Understanding Data Validation
Preparing Your Dataset
Download Excel Template
Basic Data Validation Techniques
Advanced Data Validation Strategies
Troubleshooting and Best Practices
Best Practices for Maintaining Data Integrity
Understanding Data Validation
What is Data Validation?
Data validation in Excel is a built-in feature that allows you to
control the type and format of data entered into specific cells or
ranges. Validation rules ensure only valid data input, reducing
errors.
Applications in Finance
Data validation plays a crucial role in maintaining the accuracy and
reliability of financial analysis and reporting in the finance industry.
By implementing data validation rules, investment bankers can:
Standardize data entry across teams and projects
Prevent input errors and catch anomalies early in the process
Ensure consistency and comparability of financial data
Streamline data analysis and reporting processes
Enhance the overall quality and credibility of financial models and
outputs
Preparing Your Dataset
To illustrate practical applications of data validation, we will use a
sample dataset of investment deals. The dataset includes the
following fields:
Transaction ID – Unique identifier for each deal
Client Name – Name of the client associated with the deal
Deal Size – Financial value of the deal
Deal Type – Category of the deal (Merger, Acquisition, IPO)
Status – Current status of the deal (Pending, Closed, Cancelled)
Date – Date of deal closure or expected closure
Basic Data Validation Techniques
A. Setting Up Dropdown Lists for Deal Type and Status
One everyday use of data validation in financial models is
standardizing categorical entries, such as Deal Type and Status,
using dropdown lists. Here’s how to set up dropdown lists in Excel:
Step 1: Select the range of cells where you want to apply the
dropdown list (e.g., the ‘Deal Type’ column).
STEP 2: CLICK THE ‘DATA’
TAB IN THE EXCEL RIBBON
AND CLICK ‘DATA
VALIDATION’.
STEP 3: IN THE ‘ALLOW’
DROPDOWN, SELECT ‘LIST’.
STEP 4: IN THE ‘SOURCE’ FIELD, ENTER THE LIST OF VALID OPTIONS
SEPARATED BY COMMAS (E.G., ‘DEBT FINANCING, VENTURE, IPO’) OR
SELECT THE CELLS WITH THE TEXT YOU WANT TO USE AS OPTIONS.
STEP 5: CLICK ‘OK’ TO APPLY THE
VALIDATION RULE.

Users can only select options from a predefined list in validated cells,
ensuring standardized entries.
B. ENSURING ACCURATE FINANCIAL FIGURES
DATA VALIDATION CAN ALSO PREVENT ERRORS IN NUMERIC FIELDS
LIKE DEAL SIZE. TO SET UP VALIDATION FOR FINANCIAL FIGURES:
STEP 1: SELECT THE RANGE OF CELLS FOR THE ‘DEAL
SIZE’ COLUMN.
STEP 2: GO TO ‘DATA’ >
‘DATA VALIDATION’.
STEP 3: IN THE ‘ALLOW’ DROPDOWN,
SELECT ‘DECIMAL’.
STEP 4: SPECIFY THE DESIRED RANGE FOR
DEAL SIZES (E.G., MINIMUM VALUE OF 1000000
AND MAXIMUM VALUE OF 1000000000).
OPTIONALLY, SET UP AN INPUT
MESSAGE TO GUIDE USERS ON THE
EXPECTED FORMAT AND RANGE.
STEP 5: CLICK ‘OK’ TO APPLY THE VALIDATION
RULE.
WITH THIS VALIDATION IN PLACE, USERS WILL BE
ALERTED IF THEY ATTEMPT TO ENTER DEAL SIZES
OUTSIDE THE SPECIFIED RANGE OR IN AN
INCORRECT FORMAT.
C. Date Restrictions for Deal Closure
Validating financial models requires ensuring that deal closure
dates fall within an acceptable range. Here’s how to set up data
validation:
Step 1: Select the range of cells for the ‘Date’ column.
STEP 2: GO TO ‘DATA’ >
‘DATA VALIDATION’.
STEP 3: IN THE ‘ALLOW’ DROPDOWN,
SELECT ‘DATE’.
STEP 4: SPECIFY THE DESIRED DATE
RANGE USING THE ‘START DATE’
AND ‘END DATE’ FIELDS.
CONSIDER SETTING UP AN INPUT
MESSAGE TO GUIDE USERS ON THE
EXPECTED DATE FORMAT AND RANGE.
STEP 5: CLICK ‘OK’ TO
APPLY THE VALIDATION
RULE.
USERS WILL BE PROMPTED IF THEY ENTER
DATES OUTSIDE THE SPECIFIED RANGE, HELPING
MAINTAIN DATA CONSISTENCY AND ACCURACY .
ADVANCED DATA
VALIDATION STRATEGIES
A. Using Custom Formulas for Interdependent Data
In financial models with multiple fields, data validation must
consider complex conditions. Custom formulas can be used to
create sophisticated validation rules. Let’s ensure deals with
‘Closed’ status have valid closure dates. Here’s how to set up this
validation:
Step 1: Select the range of cells for the ‘Status’ column.
STEP 2: GO TO ‘DATA’ >
‘DATA VALIDATION’.
STEP 3: IN THE ‘ALLOW’
DROPDOWN, SELECT ‘CUSTOM’.
Step 4: In the ‘Formula’ field, enter a formula like this:
=IF(E2=”Closed”,F2<>””,””)
(Assuming “Status” is in column E and “Date” is in column F)
STEP 5: CLICK ‘OK’ TO
APPLY THE VALIDATION
RULE.
B. Automating Data Consistency Checks
Data validation cross-checks data entries with external databases
to ensure accuracy. VLOOKUP is an example of a function used to
validate client names in a master database.
Step 1: Set up a master client database with client names in the
first column on a separate worksheet.
STEP 2: SELECT THE ‘CLIENT
NAME’ COLUMN RANGE IN YOUR
MAIN MODEL SHEET.
STEP 3: GO TO ‘DATA’ >
‘DATA VALIDATION’.
STEP 4: IN THE ‘ALLOW’
DROPDOWN, SELECT ‘CUSTOM’.
STEP 5: IN THE ‘FORMULA’ FIELD, ENTER A FORMULA
LIKE THIS:
‘=COUNTIF(SHEET1!B:B,B2,CLIENTS!A:A,A2)>0
(ASSUMING THE CLIENT’S NAME IS IN CELL B2 OF YOUR
MAIN SHEET AND THE MASTER CLIENT DATABASE IS IN
COLUMN A FROM THE SHEET NAMED ‘CLIENTS’).
STEP 6: CLICK ‘OK’ TO
APPLY THE VALIDATION
RULE.
IF A USER ENTERS A CLIENT NAME THAT DOES
NOT EXIST IN THE MASTER DATABASE, THEY WILL
RECEIVE A VALIDATION ERROR, PROMPTING THEM
TO CORRECT THE ENTRY.
C. Implementing Data Validation in Financial Models
Data validation is a powerful tool for conducting financial scenario
analysis. You can quickly test and compare outcomes by creating rules
that allow users to select from predefined scenarios. Here’s an example:
Set up a range of cells with different scenario labels (e.g., ‘Base Case’,
‘Optimistic’, ‘Pessimistic’).
Use data validation to create a dropdown list in a separate cell,
referencing the scenario labels.
Use VLOOKUP or INDEX/MATCH to pull corresponding input values.
As users select different scenarios from the dropdown, the model updates
automatically to reflect the new inputs, enabling rapid scenario testing.
Error Handling and Data Cleanup
Establishing robust error handling and data cleanup processes is crucial
when dealing with complex financial models. Data validation can help
identify and manage errors, but it is also essential to have strategies for
resolving them. Some tips include:
Use conditional formatting to highlight cells with validation errors, making
them easy to spot and address.
Set up error messages that provide clear instructions on resolving the
issue (e.g., ‘Please use this format when entering the date: MM/DD/YYYY’).
Create a validation summary sheet that lists all the validation rules in your
model. This will make it easier to audit and maintain.
Regularly review and update your validation rules to ensure they remain
relevant and practical as your model evolves.
Troubleshooting and Best Practices
Common Pitfalls in Data Validation for Finance
While data validation is a powerful tool, there are some common pitfalls to
watch out for when implementing it in financial models, including:
Overvalidation: Be careful not to set overly restrictive validation rules that
prevent legitimate data entry. Strike a balance between control and
flexibility.
Circular references: When using custom formulas for validation, be
mindful of circular references that can cause errors and slow down your
model.
Incomplete validation: Ensure that your validation rules cover all
relevant fields and scenarios. Partial validation can lead to gaps in data
accuracy.
Outdated rules: As your financial models evolve, make sure to review and
update your validation rules to align with changing requirements and data
structures.
Best Practices for Maintaining Data Integrity
To ensure ongoing data accuracy and integrity in your financial models,
consider adopting these best practices:
Document your validation rules and their purposes, making it easier for team
members to understand and maintain them.
Regularly review your validation rules to catch inconsistencies, errors, or
areas needing improvement.
Train your team on the importance of data validation and how to use it
effectively in their work.
Implement version control for your financial models to ensure that changes
are tracked and everyone works with the latest validation rules.
Consistently monitor and evaluate the efficiency of your validation
procedures. Seek user feedback and make adjustments as needed.
Conclusion
Data validation is a cornerstone for maintaining accuracy and integrity in
financial modeling, which is crucial for investment bankers. Implementing the
techniques in this guide enhances data process efficiency and reliability.
Remember, effective data validation is an ongoing journey that demands
regular review and improvement. Being vigilant and proactive with your
financial models benefits your clients and organization.
So, seize the opportunity to optimize your Excel proficiency with data
validation techniques. Elevate your investment banking expertise and
empower your decision-making.
And if you’re looking for tools to streamline your financial workflows, check
out how Macabacus enhances productivity in Microsoft Office for finance and
banking teams worldwide.