Accounting & Finance

Accounting and spreadsheets, why the time to change is now

Written by Jane Heidrich

Many new businesses start their ‘accounting systems’ using spreadsheets and whilst there may be valid reasons to do so in the short term, it’s never going to be robust enough to allow your business to grow and flourish.  The two main reasons that a small business owner starts with spreadsheets is cost and fear of the difficulty often associated with bookkeeping.

Bookkeeping may not be your skillset, but remember there are a lot of other things you’ll need to get to grips with to be when running a business. So, at a minimum at least consider using the right ‘tools’ and then outsource from there.

Pros & Cons

We want to help you change the perception that it’s too hard, because in reality many of the accounting systems in the marketplace have been built to be very user friendly and do a lot of the work for you.

Let’s analyse the pros and cons of accounting software -v- spreadsheets

Spreadsheets Accounting Platforms
Simple to setup Relatively Yes
Simple to use Relatively Relatively
Dashboard – “Live” Financial Position No Yes
Easy to make errors Yes Minimised
Time Consuming Yes Partially
Audit Trail No Yes
Integration with other tools No Yes
Easy to find historical information No Yes
Automatic Bank Feeds (Reduce data entry) No Yes
Reporting No Yes
GST Manual Yes
Payroll No Yes
Inventory Tracking No Yes
Job Costing Manual Yes
Ability to make Informed Financial Decisions No Yes

The Major Flaw

Don’t get me wrong, spreadsheets can do a lot of things for you.  Spreadsheets though have one major let-down: the spreadsheets that are built are often not fool-proof and are easily broken, often without you even being aware that there is a fault in some of the calculations.  It has been commonly reported that 88% of spreadsheets contain errors – a scary fact!

The Price Debate

Spreadsheets such as Google sheets can be utilised for free.   Conversely, with Excel you either purchase the product or it’s included in your monthly subscription of Office 365.   Whilst these are two low cost spreadsheeting options, there is now a number of free and low cost players in the accounting software space.

The real cost though isn’t in the software…. The real hurt comes with your accounting fees if you are not providing your accountant with reports that are materially accurate.   Additional time is often required to decipher a business’s spreadsheets and manipulate them into a format that is necessary in order to provide all of the relevant information to the ATO.   And of course, additional time equals additional costs.

Trigger Points for knowing You’ve outgrown Your Trusty Spreadsheet

These are some of the key indicators that I believe should give you some strong warning signs:

a)      Employ staff (including yourself if you pay yourself wages) – the ATO are enforcing Single Touch Payroll onto every business in Australia by 1st July 2019.   Spreadsheets will not be compliant so it will be 100% necessary to transition to software by this date.

b)      Confidential data – have you considered how simple it is for someone to transfer your spreadsheet onto a usb or email it and walk out the door.   If this includes, information such as payroll, you will have some major privacy issues.

c)      Errors are regularly being found in your data.   As your spreadsheet grows it becomes more difficult to find formula errors/transcription errors and general bugs within the spreadsheet itself.

d)      Heavy reliance of Pivot Tables, VLookup and lengthy formulas that simply hurt your head.   Whilst I admire those that can do these well, they are not features for the layperson and if your business is using these features, many of the accounting software products can do these automatically for you.

e)      Multiple Data sources – often business’s will copy and paste or import data into their spreadsheets. Consider for a minute, a business owner goes into their bank data, exports their bank data for a time period into a spreadsheet.   This data is then copied over into their ‘master’ sheet and compared to the transactions that have been entered. Why do this today, when bank transactions now feed into accounting software and this business process can be automated, saving you time and frustration.

Surround Yourself with Great

My ethos in relation to business is that you don’t go into business just for something to do, rather you want it to be successful.  To do this, one needs to be not only good at what they do but there is a need to surround yourself with great people and great tools so that you can make great decisions.  

Therefore, it is paramount that you understand the impact of every financial decision you make – using a spreadsheet cannot do this.   You need to have an accounting system that suits your needs and even if you cannot analyse what it is telling you, engage people who can.

You will no doubt have heard of the very common phrase – ‘work on your business and not in your business’.   Stepping away from relying solely on spreadsheets may seem like a difficult decision to make but if you want your business to grow and flourish rather than flounder, it’s something that is a must do.

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About the author

Jane Heidrich

Jane is the founder of Wichwon, Australia’s only online comparison tool for accounting software. Her passion is ensuring that every business has the best available tools to fit their business, not just rely on the popularity vote! This gives every business the opportunity to thrive.