By Jessica Everitt
Spreadsheets have been a staple in businesses for many years, and with good reason. They’re cost-effective and offer a variety of uses. The problem is the manual labor and risk of errors that come with using spreadsheets make them unsuitable for business finances.
Thankfully, there are much better options out there for your small business in the form of accounting software. In this article, I’ll share with you how to find the perfect finance software solution for your business needs, as well as some tips on how to smoothly make the transition.
But first, let’s take a closer look at why spreadsheets are not a great long-term solution.
7 Reasons You Should Move Away from Spreadsheets
Relying on spreadsheets for your business’ finances may seem like a smart idea at first. But over time, they present more and more risks for your company.
Here are seven reasons why you should switch away from spreadsheets.
1. Manual Errors
It’s difficult to build robust controls into spreadsheets, which increases the probability of errors. Up to 88% of spreadsheets have major errors in them. One mistyped number in a large business expense could lead to lost tax credits, incorrect returns, false statements of profit and more.
2. Decision-Making Delays
Creating spreadsheet files and reports typically requires some manual manipulation before the data is in a useful format. Due to the effort required, it’s common for spreadsheets to only be updated on a periodic basis, such as at the end of each fiscal period. When making decisions on inventory and stock ordering, you don’t want to have to rely on data that is weeks old. Especially if your business is growing.
3. Risk of Lost Data
Historical information is valuable for trend analysis, and often required in case you ever get audited. But, the larger spreadsheets become, the more likely they are to crash and corrupt. Imagine having five years of sales history in a spreadsheet only to lose it in an instant. Unfortunately, backing up and restoring spreadsheets is challenging — sometimes impossible.
4. Poor Integration
Spreadsheets don’t integrate well. For example, a company may have one file for fixed expenses, and link it to another file to track against budget and link it to yet another file to populate the financial statements. As soon as one is saved in a different location or with a different name, it breaks all the links. This can lead to a lot of lost time and headaches.
5. High Labor Requirements
Spreadsheet updates can be time-consuming. The more data you’re working with, the slower it becomes. Management and financial reports need to be created separately and often require a duplication of effort. You or one of your employees could be spending hours, or even days each month, preparing spreadsheet reports that could be done in minutes using the right software.
6. Lack of an Audit Trail
How many people on your team have access to your spreadsheets? Even with passwords, password sharing is all too common. Spreadsheets lack security and visibility around changes. You may be able to tell something was changed, but it becomes harder to identify who did it, and the exact change.
7. Inability to Collaborate
Spreadsheets make it very difficult for employees to collaborate. While sharing functionality exists, it typically slows down the file and can be challenging to see what changes the other people are making. If you’ve ever tried to have three people in a spreadsheet at once, you will know how much of a headache it is.
How to Find the Right Accounting Software for Your Small Business
There are many finance and accounting software options on the market today, across a large price scale ranging from free software to expensive software. So how do you know which one is right for your business?
The key is to identify the needs of your business now and in the future. Consider the following questions:
- How many people need to use the software?
- What other systems or tools do you want it to integrate with?
- What functionality are you looking for?
- Do you want an end-to-end solution, or simply something to track expenses and populate financial statements?
- Do you need custom reports and invoices, or are out-of-the-box solutions acceptable?
- What accounting methods, rules or guidelines do you need it to support? (i.e., LIFO vs. FIFO cost accounting, IFRS regulations, etc.)
Other considerations for selecting the right software include:
- What are the upfront and annual costs?
- Are training and support provided?
- Is the software flexible enough to grow with your business?
- How user-friendly is the software?
Once you’ve created a clear picture of what you need, select 4-5 options that seem to meet your requirements and walk through demos to evaluate how they compare. Then you can confidently select the best solution for your business.
If you’re just starting out and aren’t sure on what you need and just want to give accounting software a try, look at free accounting software solutions first as they could have all the features you need for your small business.
6 Tips for Making the Transition
Now it’s time to move away from spreadsheets. This can seem like a daunting task if you already have years of data, so here are six tips on how to make it a seamless process:
- Migrate all of your existing data from your spreadsheets to the new software, so that your history and starting balances are populated for you.
- Focus on learning the basics. Chances are, the new software will offer a lot of advanced functionality you haven’t previously used. Rather than becoming overwhelmed by this, focus on learning how to do exactly what you were doing before.
- Continue using spreadsheets as well as the new software for the first full accounting period. This will help you ensure you’re entering everything correctly and not creating errors. It will also provide a back-up in case any issues arise.
- Adopt advanced features slowly. Once you’ve mastered the basics and have freed up time by removing manual labor, you can now begin incorporating more advanced features into your business. This slow approach will make the learning curve more manageable and encourage adoption.
- Promote frequent use of the software. If you or your team are using it every day or every few days to invoice, monitor inventory, check purchase orders and other tasks, you will become comfortable with it much faster than if it’s only used once a month.
- Make use of any training and support provided by the software vendor. The more training you and your team receive, the smoother the transition will be.
It’s Time for a Move
While starting out, spreadsheets may have seemed like a no brainer for your business finances. But as your company matures and grows, it’s time to move to accounting software that can save you time, money, and headaches.
Selecting the right tool will reduce risks to your business, enhance collaboration, and allow you to make important business decisions faster. When choosing your software solution, consider the needs of your business, the flexibility of the tool, the training offered and the costs involved.
Once you’ve found the right accounting software, transition slowly over time, use it regularly and take advantage of any training and support provided for the greatest level of success.
Have any tips on how to transition from spreadsheet to software? Let me know in the comments.