While many businesses use excel as a starting point for running their business, and it is a great place to start if the only choice, there are many risks. Excel is not a long-term solution to be able to effectively run a growing business.
Formula errors found in a spreadsheet of a startup business we once worked with resulted in an understatement of actual revenue received. Luckily, the business owner had come to us to set up their accounting system, QuickBooks Online, within the first few months of starting up the business. The errors were caught early on, but it is a lesson for all businesses. The result could have been disastrous for the business not only in terms of underreporting of revenue but also potential taxes paid in to taxing authorities.
Most importantly, limiting yourself to running your business only with Excel Spreadsheets cannot provide you with all the decision-making tools you need to run your business. Below are some issues you can experience:
Who Controls the Master Sheet?
Tracking the master version of a spreadsheet can be a challenge. There could be several versions of the same spreadsheet circulating in the organization, making it impossible to know which spreadsheet is the most recent and has up to date information that has been verified. Accounting systems limit version control nightmares inherent in using Excel spreadsheets and workbooks.
Checks & Balances
This feature isn’t available when your using spreadsheets. Manual reconciliations can be done by creating a spreadsheet, but there is no check against system source data like there is in an accounting system. An accounting system limits data entry and record keeping mistakes with inherent system checks and balances such as the ability to do reconciliations. Having everything in one place within one system versus several spreadsheets and workbooks allows for additional checks and balances, including audit trails.
This Isn’t Adding Up
Spreadsheets are challenging to determine where discrepancies exist and numbers not adding up. While you can build macros and set up a spreadsheet to perform certain mathematical functions automatically like summing numbers, there are a limited number of checks and balances you can build into the spreadsheet to find certain types of errors that can typically occur. Manual data input or transposition errors or figures never making it to the spreadsheet are more likely to happen with maintaining Excel as your accounting system, making the detection of errors or missing information more difficult.
If a cell had an error, the effects can be compounded resulting in other miscalculations down the line. Finding a faulty formula can be time consuming and have a significant impact on the results being used to make your business decisions. Cell errors make it hard to find how much money your business is making, monies receive or still owed to you or that you paid or owe others.
With spreadsheets you can password protect a workbook or not allow changes to certain cells on a spreadsheet. There is no ability to limit access to information within the excel workbook itself. Once a person has access to the workbook, they have access to all the information within the workbook. With an accounting system, you can set up certain rights within the software to give different degrees of access to information and reports.
Can’t Keep Up
Eventually spreadsheets cannot keep up with what is needed to effectively run a business. Every month you need to go in and remember to make changes to the spreadsheet. Excel can be automated somewhat, but still requires a certain level of continual manual input. Excel is limited in its ability to be scalable for a business with significant volume of transactions, pricing levels etc. Accounting systems have the ability to be synced and integrate your data information in one place ensuring that the information will be up to date across various functions allowing you to have the most up to date financial information with ease.
What’s the Real Cost?
You can’t put a price on time. Using spreadsheets take up more time and in long-term cost more to try to figure out versus using a reliable accounting software. Creating formulas, filters, macros and other data connections makes it time consuming for setup and maintenance. In addition, the cost of errors could result in understatement or overstatement of income impacting the calculation of taxes due,. Also, making potential business decisions based on misinformation could negatively impact the companies cash flow and/or results. More than 80% of business that don’t survive indicate as a primary reason, poor cash flow.
Although spreadsheets do provide an excellent ability to do additional analysis on information generated from your accounting system, it should not be your primary source for maintaining your company’s financial information. As your company grows you need a reliable tool to grow with your organization.
Need help converting your business information from spreadsheets to an accounting system? The team at SIMPLY Financials PLUS can assist. Just let us know.