While excel is popular for many businesses as a starting point from their initial conception. There are many risks. Excel is really not a long-term strategy to effectively run and grow your business.
It usually takes a nightmare or really bad experience to finally convert from using excel. An example, a client we were working with had formula errors in their spreadsheets which resulted in an understatement of actual revenue.
Here are some other issues that you will face if you are running your business through excel;
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.
Excel really does have its pros – and is excellent at a certain time and place.
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