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In this guide, we’ll break down the real limitations of Excel for accounting, and when it’s time to move to a better system.
Table of contents:
1. Why Small Businesses Start with Excel for Accounting
2. The Hidden Problems of Spreadsheet Accounting
3. The Real Limitations of Excel for Accounting
4. Excel vs Accounting Software: What’s the Real Difference?
5. When Excel Becomes a Financial Risk
6. What Modern Accounting Software Does Differently
7. A Simpler Alternative for Small Businesses: ProfitBooks.
Why Small Businesses Start with Excel for Accounting
For any small business, the only way you can track and manage your business is by having an effective accounting system. Excel for bookkeeping has always been the go-to solution to ensure you have better control of your business by keeping up with records. For some people, it is because it is the only one they know and have interacted with, but it should be known that it is much more than the common one. It has more exquisite features that are very beneficial to you as a business owner.
Excel is a preinstalled program that comes with the Microsoft package for the windows OS computers. This feature makes sure that it is available for most, if not all, users who have access to a computer.
It is free as long as the package installed is activated and aligns with the version of the OS installed.
It is a simple system that makes it easier for anyone to train on and even improve without necessarily having to change a lot of the underground settings.
It is a flexible system with Excel accounting templates that you can use at whatever point in your data management in your business, depending on your needs at that time.
For excel as long as you are IT proficient, you can manoeuvre the Excel platform easily and change what needs to be changed with no to less incurred issues.
You can add a password-protect feature on the entire work page, or certain sheets that you may need access limits, especially if several access has access to the workbook.
Why Excel Feels Like a Good Idea vs Reality Over Time
This is a table that is aimed to show you comparatively how excel is a good idea but could get outdated with time depending on your business goal. These are not all the features but a highlight of the ones that seem more relatable to you and your growing business.
2. The Hidden Problems of Spreadsheet Accounting
Excel is one of the most effective options of spreadsheet accounting systems that is used by small businesses today. There are only a few features about Excel that may make you reconsider it. This does not make it less effective; it only creates a need for keenness and more concentration while working on it. This is why basic knowledge of the computer packages, more so the Excel program, is vital for anyone who intends to use it.
There are some spreadsheet accounting problems that are faced by Excel users that will cause an integrity issue with the reliability of the data. Many of them are manageable with constant audits and keenness when handling the workbooks, while some of the limitations can only be fixed by changing the systems.
Manual financial reporting in Excel exposes it to possible entry errors. These are the small typo or misprint errors that are made when inputting data into the excel sheet.Some of them could be intentional while others are unintentional
There are several formula mistakes that could lead to issues in the final report that you need. It is therefore important that you study the formulas offers and how best to use then in your sheet.
Constant updates of the Excel program lead to different versions that could have different features every time.
Many of the versions of Excel have limited audit trail abilities that could help you track changes that you could have done on your data and the reports that you are creating.
The individualism of the Excel programs limits the ability for people to work or foster collaboration when handling projects. One has to work on the report at a time and share it with another for any changes to be made.
Practical examples:
Ø One broken formula changes the total profit.
Ideally, total profit would be
=sum(A2:B2)
When product C was added, the formula did not change. It will not capture the new item and retain it.
=sum(A2:B2)
Instead of
=sum(A2:C2)
Ø Duplicate entry changes cash flow.
If product C has been added to the Excel without proper keenness, it is charged as a new input, changing the total profit despite it being a double entry.
Ø Two team members are editing the same file.
In most cases, the double entry of data product C was done because a different person handled the data without checking to see what the other person had already done. Double entries lead to false reports that prevent effective planning.
3. The Real Limitations of Excel for Accounting
Similar to most of the spreadsheet accounting systems, there are limitations of Excel for accounting that you need to understand before you fully embark on it. The limitations do not mean that, as a small business accounting spreadsheets program, it will not work. It will only require slightly more work.
Some of the most notable limitations according to recent research and reports by scholars are like
Excel is not scalable. It can not handle large data volumes without affecting the integrity and the quality of the report that you are trying to get, especially with several formulas in question.
Accounting is made seamless when you are able to tag it to your bank account for easier accountability. Excel does not have that feature.
It does not have any automated categorization that updates the data in real time. Someone has to manually update and change details in the Excel sheet for it to suit the recipient at that time.
The Excel program is not meant to come up with reporting logic. You have to set it to result in what you want. This is through formulas and categorizations that help you analyse and communicate data that you are working with.
VAT automation is a major aspect of any business that is directly related to the invoices, sales and the expenses incurred by the company. Excel does not have a direct VAT automation that allows you to know how much you owe. You have to manually calculate to get the values that you need.
4. Excel vs Accounting Software: What’s the Real Difference?
Understanding the structural differences between Excel and other accounting software helps you decide which one works better for you. This is important to help you gauge your growth rate for the business. Can Excel still work for you, or do you need a more improved accounting system? It is important to know at what point you will need to change systems and what limitations and advantages both accounting software have on you and your business.
Diagrammatically, here are some of the distinct features that many people use to gauge and decide between Excel and other accounting software.
Microsoft excel vs other accounting softwares
5. When Excel Becomes a Financial Risk
Financial risks are the small aspects of any business that you need to be careful about. What in your business creates a leak in the finances? What are you overspending on, or are you undercharging, that could result in you not getting the actual amounts that you have predicted?
The Excel accounting limitations that are noted affect the running of the business in one way or another if you do not prepare adequately.
It creates a need for an added accounting system that will result in added cost charges to handle the needs of our business. This includes an extra charge of getting an accountant who is certified in handling accounting systems to ensure that the data in the Excel is suitable and effective for running your business.
It cannot handle more than 50 transactions a month without compromising on the integrity of the results.
The delays and misreporting eventually result in cash flow miscalculations, which lead to inefficiency in your books.
It is not VAT registered, which will create a need for extra expense in looking for a system that will handle the VAT accounting. Failure to do so will result in high rates of misreporting, creating a hassle when it comes to your compliance with the VAT regulators.
Excel sheets are effective in dealing with one client at a time. This is limiting if you have to deal with records of more than one client at a time. Handling multiple clients with Excel is possible, but the delay in time resulting from shifting from one client could be inconvenient in real-time reporting. If you want to learn how to manage Bookkeeping starting from 0, take a look also at our article about "Small Business Bookkeeping – Complete Beginner’s Guide" here.
6. What Modern Accounting Software Does Differently
The need to have a more effective accounting system has led to the innovation of improved programs that are aimed to override the limitations that Excel places on businesses.
A modern spreadsheet accounting system is aimed to solve most if not all of the major issues that excel accounting system users are facing. There are different versions and types of accounting systems handling different types of services and functions. Most of them should however be able to
Incorporate an automated expense tracking system that allows you to pinpoint how your business is working in regard to the cash flow.
This automation works with real-time data collections that allow them to generate real-time dashboards and quick loss and profit reports without having to waste so much time running through data sheets.
The system should be able to generate VAT applicable invoices to the clients, which they can use for revenue collection purposes.
Modern accounting systems have features that link them to the bank account of the business. This creates a smoother bank reconciliation of the accounts and the sales that have been done that time.
Many of the modern systems have internet allowance that links them to cloud storage, removing the need for physical hard drive storage that risks loss of data through viruses and wrong party handling of the data.
Its linkage to one system allows several parties, as long as they are connected to the same system, to access and manipulate the data. This is, however, managed by levels of restrictions guided by their position in the business. The multi-user access allows teams to work on one project at the same time, even when they are in different locations.
It has a cloud-based storage access that offers large storage ability for your data linked to the email of the company to prevent the need for physical storage spaces.
7. A Simpler Alternative for Small Businesses: ProfitBooks.
For small businesses that started with spreadsheets but want more structure without complexity, tools like ProfitBooks offer a simple dashboard to instantly manage invoices, expenses, and reports in one place. It is categorically designed as a cloud accounting software, harboring several functions in one place. It makes it superior to manual Excel spreadsheets.
ProfitBooks are worth considering if you are running a business and your intention is to make use of the constant growth rate you are experiencing. Forecasting in any business is vital to ensure that you get the best out of it. This increases the need for better reports and more advanced handling of your business.
Built-in preset formulas and functions that ensure that few to no errors are made in the process of handling data and generating reports.
Built-in report-generating systems that automatically come up with any of the reports that you need. All you need to do is identify what parameter to use and the type of report that you need.
ProfitBooks are designed to clearly outline the profit and loss levels that every business has. This means that it has a clear and cleaner workflow of the processes and the activities that are handled by the business.
Its simplicity allows you to work on it without the need of any accounting professionalism and still achieve the needs of your business.
The program supports multi-currency that allows you to work in markets other than your own.
There are offers for single plan users
You can easily customize your invoices to suit the plan you had for your business.
It has an automated system that allows you to link your bank account to the system for easier accounting.
If you’re still using Excel for accounting, it may be time to test a more structured system, explore ProfitBooks and see how it compares to your current spreadsheet. We offer free registration of the ProfitBooks small business accounting system if you have had enough of Excel for accounting in your business. Just click on the image below:
Receipt Bot
It is another automated option for businesses that handles the volumes of receipts, generates invoices, tracks spending and identifies issues in the data collected. The function of the receipt bot is to link structured accounting and receipt processing solutions, making it easier and smoother for a business to track its progress of their business at all times. See full details by clicking on the image below:
Conclusion
For any small business, Excel for accounting will work perfectly if you have a manageable amount of data that needs to be handled at any time. It is simple, easy to learn, and allows you to handle each report individually, which means you will know and understand your raw data better . It can only be handled by one person at a time, minimizing the need for security measures to be put in place. It, however, has some structural limits that could lead to spreadsheet accounting problems over time, especially because of its lack of flexibility.
Modern spreadsheet accounting systems minimize this risk and focus more on clarity and efficiency, even with the large amounts of data that you will eventually have as your business grows, like ProfitBooks, which is simpler, easier and adaptable with the changes in the economy today. Modern accounting systems allows collaboration, large data sets and automated report summaries and dashboards for when you need to present to your team members or your seniors.
Not only does it make your work easier, it also makes it more classy and presentable even before shareholders. You look more processional with modern accounting systems like ProfitBooks.
Accounting Software Ireland
Independent bookkeeping and expense tracking guides for freelancers and small businesses. Practical insights to help you manage your finances with confidence.
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