Why Your Business Shouldn’t Use Excel for AccountingBrian Jang ON August 14, 2018
Many small businesses don’t think twice about their choices for bookkeeping and go straight for Excel. After all, Excel is extremely well-known. It has been around seemingly forever, most people are familiar with it, and it is an easy matter to find multiple online tutorials and sample accounting formulas.
But while it is the default choice for many, there are reasons why you shouldn’t use Excel for accounting, some of which could cost you dearly.
Consider the 2012 London Olympics. Owing to a “single keystroke mistake,” as reported by The Telegraph, a swimming event was over-sold. One simple mistake, resulted, where a 2 was entered in place of a 1 resulted in 20,000 tickets being sold for an event that could accommodate 10,000.
Of course, errors can and do happen, but sometimes, the results can be catastrophic. If the example above doesn’t frighten you, then consider how J.P. Morgan also had the misfortune of making a single mistake—one which was compounded when one wrong calculation was fed into other calculations, ultimately resulting in the loss of more than $2 billion.
That’s not to say that there isn’t ever a need for spreadsheets, but if you are using them for your accounting? Well, perhaps consider making a change.
How Much is Excel Costing You?
This question isn’t about the cost of the program itself, or any other similar tool. The real cost is time.
For many small businesses, accounting can be time-consuming. A survey of small businesses made in 2014 reported that 40% of small businesses spend over 80 hours each year on their federal taxes alone. So how much time and money are being spent on accounting?
Let’s assume that the person handling the accounting earns an annual salary of $57,000, which is roughly the average salary for a college grad in the US. If that person spends 10 days out of their year working on the federal taxes, then approximately $2,192 of their salary goes toward that alone.
By using better tools, time spent on accounting can be reduced, greatly affecting the time-value cost.
Spreadsheets Do Not Accurately Predict Cash Flow
Being informed on the state of cash flow for your business is a major concern. In fact, more than 80% of businesses that fail point to poor cash-flow management as a main cause. This doesn’t mean that they were not making money; rather, it means that they were unable to forecast and budget correctly for their growing company.
As a business grows, it invariably becomes more complex, and that growing complexity makes it more difficult to make major decisions that impact the company. Without the tools adequate to do the job, you may find yourself in difficult straights. Switching to a different option, like Quickbooks, can provide you with everything that you need to know about your cash flow, allowing you to make more informed decisions.
A Spread Between the Sheets
Another issue with Excel is one that often goes unnoticed until it is too late: inconsistent spreadsheets.
Excel is not built as a central hub for all of your accounting, budgeting and inventory needs. Because of this, you need to manually add data in multiple places, and manually change that data when required. This is an issue faced by businesses of all sizes, but the bigger your company gets, the more likely you are to encounter problems, with 44% of enterprise-sized companies struggling with inconsistencies in their spreadsheets.
The main issue with this is that it can become very difficult to identify where a problem originates. Although it is possible to reconcile two spreadsheets, when you are dealing with an error made several months past, it is difficult to determine which spreadsheet is correct.
One small error can lead to one big problem.
Having an error in even one cell of your spreadsheet can have major repercussions, as discussed above. A single comma or decimal out of place creates an error that will be used to miscalculate other computations, creating a cascading effect.
Canadian power generator TransAlta discovered this back in 2003, when a small spreadsheet error cost them $24 million. The error in question? A cut-and-paste error in an Excel spreadsheet.
Even though you may never experience loss of such magnitude, human error still results in the loss of revenue all the time. A small business that underestimates their monthly inventory expenses, or over stocks their inventory may be facing huge problems.
Spreadsheets Will Not Scale to Keep Up with Your Company
You may find that Excel works just fine for you as a small business just getting started, but you want your company to grow, and with that growth, there will be a number of changes in your business—new products, new employees, changing prices and financing. It won’t be long before your spreadsheet can’t keep up with you.
Your business already faces enough challenges. Make sure that the tools you use to help you are not, in fact, hindering you.
For all your business accounting needs, contact BCJ Group today!
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