Small business accounts – why a spreadsheet won’t do

 In Small Businesses & Startups

When starting out, many small businesses rely on a simple spreadsheet to keep track of income and expenditure. For microbusinesses, the humble spreadsheet seems to provide everything they need to monitor day-to-day finances. With a limited turnover and a very small number of clients, spreadsheet accounting seems like a relatively simple and pain-free method of keeping on top of small business accounts.

Spreadsheet accounting: too simple

But the fact is that in the long run, spreadsheets are just too simple to track the detail required to fully understand your finances. As the volume of orders and purchases increase, so too does the complexity of the sheet. Where invoices and remittance advice are created manually, this then needs to be linked back to the data in your spreadsheet somehow, making it very difficult to obtain a real time view of what’s happening in your small business accounts.

Although everything is possible with a spreadsheet, not everything is desirable. The more information that needs to be copied between sheets and documents, the greater the margin for error creeping into your figures for instance. Even if you create formulas and macros to copy information automatically, there is a risk that these too could introduce inaccuracies into your data.

Time-consuming manual work

And ultimately spreadsheets are inefficient – the amount of manual effort required to keep the system updated eats into valuable time that could be better used for activities that will earn your business money. Especially when you consider tax and payroll legislation changes regularly, requiring you to manually correct the formulas and macros behind each sheet with every update.

HMRC compliance

Looking towards the future, as your business grows, the complexity of your financial transactions will also increase. Moving from sole trader to limited company requires you to keep financial records in a certain format ready for your annual submission to HMRC and Companies House for instance.

Then there is the issue of an expanding workforce. HMRC expects you to keep detailed records of PAYE and National Insurance receipts for each employee. Again these details could be stored in a spreadsheet, but they will not meet the real time reporting requirements for modern payroll.

Modern accounting software

The issue becomes less a case of how to account using spreadsheets, and more of why? Accounting software provides all of the functionality required to manage income, expenditure, balance sheets and payroll automatically. All you need to do is keep inputting the correct data – the system will perform all necessary calculations to ensure your balance sheet is accurate.

Other advantages are available depending on which accounting system you choose for your business. Here at 3 Wise Bears we provide all our clients with access to either Xero because both systems boast excellent record keeping abilities that help keep finances in check. The fact that these are “hosted” systems means that our clients:

  • Never need to update software manually
  • Benefit from data being stored offsite, protecting against loss or theft from their offices
  • Are always automatically up-to-date with changes to accounting and payroll law

For businesses serious about growth and financial success, modern accounting software is the way forward.

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