Dangers of Using Spreadsheets for Financial Accounting

Microsoft Excel and similar spreadsheet programs have been very useful in helping businesses automate many of their processes. The ability to customize a spreadsheet to track specific data provided a low-cost automation option for many small businesses in the late 20th Century. As we move further into the 21st Century, however, the growing complexities of the business world are making it difficult for the spreadsheet to maintain its usefulness. Accounting Software

This is particularly true when it comes to financial accounting. Many companies are still using spreadsheets that were customized by their IT department (or outside IT consultants) several years (or even decades) earlier. These programs have some hidden dangers many businesses are not aware of.

Here are five dangers of continuing to use spreadsheets to track the financial data of your business:

Spreadsheets are prone to errors: For a spreadsheet to function properly, the formulas need to be precise. One incorrect entry, cell added out of place, wrong macro or overridden calculation could throw this very fragile ecosystem out of whack. Most companies have several employees making entries into the spreadsheets, so there is always a risk of an error that brings down the whole system.

Spreadsheets tend to be inflexible: Every business must stay in compliance with federal, state and local laws and regulations. When the rules change in the area of finances or accounting, the spreadsheet must be updated accordingly. Unfortunately, this will most often involve more than just adding a macro or two. In many cases, the entire spreadsheet will have to be reconfigured.

Spreadsheets are difficult to scale: As your business grows, new categories may need to be tracked in order to keep everything automated. Again, it will often take more than just adding some new formulas, cells and macros to ensure the accuracy of your data. This wastes valuable time (and money) you are spending on accounting that is better spent running your business.

Spreadsheets are not relational: To track the important financial data of your organization, you often need multiple spreadsheets. However, these spreadsheets do not “talk” to each other. Interpreting how the data from one spreadsheet affects that of another is a manual task that takes up valuable time that is again better spent focusing on core business functions.

Spreadsheets pose security risks: Spreadsheet data is continually updated by employees who are most often not IT people and know very little about keeping the data secure from outside hackers. With the widespread data theft going on today, it is important to work with a system that uses the most up-to-date security.

For this reason (and the others listed), most accounting firms recommend using an accounting system such as QuickBooks to ensure easy integration, scalability of data and a security system designed to protect your company’s critical data. It is always best to speak with a small business accountant for information and advice about how you should keep track of your business financials.

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