Beyond the Spreadsheet

There’s a common idea in small businesses about bookkeeping. It goes something like this: Early on, you can track your finances with Excel or in Google Sheets. When you start paying employees, you can still fit that on your sheet. At some point, though, there will come a point where a spreadsheet doesn’t give you the fine detail you need, and you need to invest in better bookkeeping software. As a firm of accountants supporting small businesses, we deal with businesses exiting this stage on a very regular basis. That’s why we feel qualified to say: Don’t do this. Why not?

There’s No Double-Check

Before accounting moved from paper ledgers to software, the term double-entry bookkeeping emerged. When you add incoming revenue or outgoing expenses, you’ll enter it twice, and this provides an opportunity to check that it was entered correctly the first time. Some modern accounting software allows you to do things like import PDF invoices or scan receipts directly into the system. Even then, there’s a cross-check to ensure that the totals being recorded are right. When you enter figures into a regular spreadsheet, it doesn’t necessarily cross-check them. Just as importantly, if your calculation formula has an error in it, the only way you’d know is if it causes an error message. More likely, your spreadsheet is just going to show you an inaccurate number, with no good indication that it’s inaccurate.

It’s Not Compliant

Perhaps it would be better to say, it’s easy to become noncompliant this way. The threshold at which you must enrol into Making Tax Digital dropped this financial year, and it is likely that either in 27/28 or 28/29 it will drop again. Small businesses will be dealing with Making Tax Digital earlier and earlier in their growth. Overall, we have to say this is a good thing. The Making Tax Digital initiative is encouraging better financial hygiene in small businesses and giving business owners, stakeholders, and decision makers a clearer sense of the monetary impact of their decisions. That means you can move away from bad decisions more quickly and put more weight behind the tactics that are working. Spreadsheet accounting will not cut it in a Making Tax Digital world. Your information must be accurate, up to date, and it must be submitted in specific formats. However proud you are of your spreadsheet wizardry – and we do respect an XLOOKUP executed correctly – the simple fact of the matter is that spreadsheets aren’t designed to do this.

It’s Time Consuming

One of the other benefits to modern accounting software is that a lot of data entry becomes automatic. Invoices can be automatically filed, payments noted automatically, payroll systems are integrated – so much manual work has been replaced, which both saves you time and minimises the chance of error in entry. This is a huge benefit.

It’s Never the Best Time to Switch

The whole myth of using spreadsheets early on is built around the idea that once you hit a certain point, it’s the right time to switch. In practice, transitioning from spreadsheet to modern software requires you to learn new habits, unlearn other habits, and transfer a significant amount of data from one system to another. As your business grows, this is always a huge time investment you can see coming, and the temptation must always be there to take a look at that time investment and put it off. Businesses that start on Excel end up with a perverse incentive to stay with the old ways for much longer than they should do. Far better to start off the right way and get into good habits from the start so you don’t have to unlearn them later. We hope you’re reading this article with time to make the right decision from the start, but we know that some of you will already be well embarked on your spreadsheet and wondering how to transition. If you’re dreading it, why not give us a call? Having the support of experienced accountants will make the process much more efficient.