Using Excel for Small Business Accounting: Advantages & Drawbacks

So, you have launched a start-up?

What next? How do you plan to carry out the accounting process? One trendy and comfortable choice is to go to the “excel” way.

Let’s talk about how it is going to be beneficial for your business.

Excel is used for a book-keeping purpose and helps store financial data (sales, revenue, purchases, etc.) and other employee level accounting data. With the functionality of formulae and macros in place, it is easier to get calculations done and present the data in the form of charts and graphs. With courses available online as well as instructor-led training, it is easier to get acquainted with excel.  

Advantages of Using Excel

Here are some key benefits of using excel for small business accounting.

1. The Ease of Organizing Data

With excel accounting, users can easily store data in spreadsheets in a more structured manner or in any way they want their reports. There is the added feature of presenting the data and accounting results in the form of pie charts and other graphical representations. It is an easy feature to learn even for amateur accountants.

2. Macros and Formulae

Anyone who has worked on excel accounting is familiar with the ease to use and record calculations related to macros that they can use regularly. You don’t need to be a mathematician to work magic on your spreadsheet; excel does all the work for you. Imagine every month, when the company’s financial data changes, you would think the whole report will need to be worked on again. With excel and its macros and formulae, the spreadsheet automatically calculates the data without you having to intervene manually. A handy feature of excel is “what-if,” which is excellent for forecasting budgets based on user preferences.

Also, Read:Impact of Blockchain Technology in Accounting

3. Forecast Sheets

Somewhat similar to the “what-if” feature, forecast sheets help the user draw estimates using historical data over past years to aid in forecasting current or future cash flow volume.

4. Customizable Book-Keeping Templates

 Whether it is recording macros or applying calculation formulae, with excel, it is easy to create book-keeping templates that can be reused every month. With this cost and energy-saving feature, you can further incorporate your requirement for specific receipts, invoices, and other reports that you need regularly.

5. Ready-to-Use Templates

 While it is easy for you to customize templates, leading excel service providers like Microsoft provides you with an option to use invoice template from their vast library of an existing invoice, ledgers, reconciliation, budgeting, and other accounting trackers.

6. More Comfortable to Compare Datasets

To get an idea of where you are headed in terms of revenue, it is a practice to analyze year-on-year and month-on-month data. So, comparing financial datasets between two periods to calculate income can be done with the click of a button. You could also compare customer base across geographies in case of a retail or reseller small business and analyze other factors like age, purchasing preferences, spending capacities, etc. to know how your business is performing through excel.

7. Multiple Users at Time

One of the other great features of Excel spreadsheets is the capability of multiple users operating on a single spreadsheet at the same time. It could be in the form of shared sheets like Google Sheets that allow more than one user to work on them simultaneously.

8. Affordability

 Every small business has one issue to deal with when it gets launched – the matter of financial stability and the urgency to break even in terms of revenue. So, even the smallest of savings will come handy for them. Using an excel spreadsheet is an obvious choice for such small-time business owners since it is a cheaper option than going for full-fledged accounting software.

Drawbacks

While excel has many benefits for a growing small business, there are some cons of using it as well that you might want to consider at the same time.

1. Only Allows User-Defined Reporting Filters

Since, the filters are defined and set by the user, any other relevant information may be omitted from the reporting results. This means that a new user will have to set their filters for the same data, which would affect the reporting results.

2. Learning Macros and Calculations Need Practice

While macros and formulae ease complicated calculations and tedious reporting, the user will need to develop a certain sense of expertise before they can be used to their optimal capability. User needs to learn the right syntaxes to enter formulae. Furthermore, any wrong data or method entered will impact the entire calculation, and hence the whole report.

3. Difficult to Collate Data

With myriad sources of information in a firm, including that from third-party vendors, it is difficult to trace and assemble all relevant data. Imagine pouring through multiple sources all day to get data for one single spreadsheet. If even one person ends up providing the wrong data, the whole consolidated report goes for a toss!

4. Security Issue

While worksheets may be your first “go-to” option, they are not all that secure because they are prone to hacking and data corruption. Even when protected with a password, spreadsheets are not 100% safe from being misused, especially the ones carrying financial data.

5. Not Evolved Enough

While excel accounting may be useful for a small accounting and reporting purposes, it is not developed enough for bigger businesses and more complex accounting purposes. In today’s age, when there are more diversified reporting requirements and reporting for a large number of needs and authorities, excel accounting is not entirely reliable.

6. Challenging to Collaborate

While Google does offer sharing capability of spreadsheets, all excel worksheets available in the market don’t provide freedom for teams across diverse geographies and departments to collaborate and work on planning, forecasting, and budgeting reports simultaneously. The result is a spreadsheet that is continuously circulated among departments over emails.

7. Delay in Decision-Making

With every second wasted in collating the data from multiple sources, reaching out to the concerned authority for validating and rectifying the data will hugely hamper the decision-making process. So, if you are working on an urgent accounting report or data, excel accounting can be a very stressful tool to use, not to forget the potential errors that will happen due to manual intervention.

Also, Read: The Benefits of Accounting Software For Business Owners

8. Cumbersome to Store Data

Because all accounting and reporting have different criteria, it results in truckloads of reports that need to be stored for current and future perusal. It is cumbersome to organize such statements and then to locate them in the future. Also, think of a situation when you would want data from two different historical reports, you will need to run a third report manually to get the desired results.

Another point worth mentioning when it comes to talking about the drawbacks of excel for small business accounting is the lack of vision that provides for your future revenue and growth as it lacks the scalability and the intuitive factor to predict profit and progress of your business.

In a nutshell, while it is easy to use excel accounting for more straightforward accounting data and financial reports, it is best advised to indulge in automated accounting software to make your life easier. It will give a much-needed boost to your small business. Plus, it is more robust, more scalable, more user-friendly, more dynamic, and hence more reliable than the traditional excel accounting methods!