You’ve finally done it!
Congratulations, after all that struggle and effort your business is up and running and you are making sales.
And now comes the next part, the bit that has to be done but that you’d rather avoid…. Your Accounts!
And if you are like most people your first option is to start using spreadsheets to issue your invoices and manage your accounts. And why not, after all spreadsheets are powerful calculators and they are easily available.
However, make sure that you are aware of these 7 dangers of using spreadsheets to manage your accounts. Forewarned is forearmed as they say!
7 dangers of spreadsheets
- Requires and in-depth knowledge of spreadsheet calculations
Spreadsheets are simply inanimate rows and columns of data that only come alive when you include them in automated calculations which are based on values in other cells. Every time a change is made to one of the cells the spreadsheet recalculates all the related values.
Basic addition, subtraction, multiplication, division and percentages are pretty straight forward but once you move beyond these basic calculations you must acquaint yourself with more advanced spreadsheet features. Now add in multiple spreadsheets that are all interdependent and the complexity increases considerably.
- Requires an in-depth knowledge of accounting practices
The following is a small subset of the many accounting tasks that you will be required to complete on a daily/ weekly/ monthly basis:
- Enter deposits and payments
- Enter payables and receivables
- Pay any bills due
- Follow up on any past due accounts
- Enter principle and interest on any loan payments
- Reconcile all bank and credit card accounts
- Create/review monthly profit and loss and balance sheet statements
- Create/review monthly inventory, sales, and other reports
Some tasks are pretty straight forward but some of them require an in-depth knowledge of accounting practices. This is an important consideration – where is your time best served: stuck in spreadsheets managing the technical aspects of accounting practices or managing other aspects of your startup business.
- Unnecessary duplication of effort
No matter how well organised you are there will be unnecessary duplication of effort. This is a major pitfall of spreadsheets.
- High risk of errors
One of the most common issues with spreadsheets is the inputting of incorrect data. Human error is commonplace no matter what system you are using.
One error that catches a lot of businesses is where you the owner have a different understanding of an expense and your sales manager or store manager places it in a different category. This lack of clarity leads to confusion and incorrect reporting. Tracking the error takes time and it’s shown to happen again and again.
- Unreliable information produced
Following on from no 4 above if the data you are working with is posted to the wrong column then you are in effect making business decisions based on unreliable information. Some businesses are seasonal in nature so they can ill afford to make cash flow projections that are incorrect and will leave the business exposed to a cash shortfall when they need it most.
- Sharing is problematic
Spreadsheets can be shared online but if you are managing all you accounts from the one spreadsheet then how do you grant access to specific areas, areas that are only relevant to the colleague you are granting access. Your colleague does not have internet access so downloads the spreadsheet and makes changes which he then uploads. You too have made changes. Problematic to say the least and more time wasted.
- Security of information (tracking what you/others have done)
If more than one person has access to the business spreadsheets how do you validate who has done what and when? If any issues arise and your accountant requests an audit trail you’ll be left high and dry. Accidental or malicious changing of the data is a must audit requirement for all businesses.
So if you are using spreadsheets to manage the accounts of your business make sure that you and anyone else that has access to them is aware of these 7 points.