Many new business owners try to use Excel for bookkeeping, especially in the early days of their businesses. They are, understandably, trying to keep costs low and don’t want to spend money on hiring help or investing in software. But trying to use Excel for your books never ends well. Here are a few reasons why.
When you try to do it yourself, you simply don’t do it at all.
I can’t tell you how many people I’ve worked with who have some sort of Excel bookkeeping spreadsheet that is never updated. Yes, they’ve put it together neatly. But the figures never actually make it to the spreadsheet until the following year when it’s time to prepare taxes. Then the business owners are scrambling to find receipts and input income and expenses – which takes time away from the business.
Excel is entirely manual and is not tied to the real world
If you’re going to try to do it yourself, you have to actually do it yourself – every single month. If something changes, you have to remember to go in and make the change in the spreadsheet yourself. Excel can be automated somewhat, but most things must be input manually. That can lead to all kinds of problems, which leads us to the third reason why you shouldn’t use Excel for bookkeeping.
Your Excel spreadsheet is likely riddled with errors
It’s far too easy to make mistakes in Excel. You override a formula or transpose two numbers and everything is off – and it can be difficult to find the mistake. A study found that 88% of Excel spreadsheets contain errors, so the odds that your spreadsheet has some sort of error is incredibly high.
I’ve worked with one consultant who religiously tracked her client payments in an Excel spreadsheet. She used this same spreadsheet to calculate her quarterly estimated tax payments. It wasn’t until she contacted me at the end of the year that we realized that her box for “Total Revenue” had a faulty formula … and that she had underestimated her annual revenue by $12,000! Not only was her annual revenue off, but this error meant that her estimated tax payments were lower than they should have been and that she would probably be facing a much larger balance due on her tax return than she had expected.
Excel spreadsheets limit your growth potential
Many companies start using Excel because they think it’s all they need for the moment. And yes, it might work in the short-term. But using Excel to manage all your accounting information can become incredibly difficult as your business grows. That increased level of difficulty can be a hindrance for businesses – you unintentionally limit your business growth because you know how much harder it will be to manage your accounting.
The good news is that there are many financial tools available to help small business owners. If you defaulted to Excel because you didn’t know what your options were, now’s the time to take a look. This is the first post in a series on what to do in your first year of business.
Starting a business can be overwhelming, and whether this is your first or fifth year in business, you can always find new tips and tricks to streamline processes and improve accounting systems. Stay tuned for the next blog post where I’ll share the top financial tools you need in your business today.
Of course, if you’re ready to ditch that spreadsheet and move into the world of cloud-based accounting, contact me to discuss your options and how I might be able to help!
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.
