A common issue we come across when working with SME business owners is the use of Excel spreadsheets (or worse a shoebox) instead of appropriate accounting software to manage their record keeping requirements. When asked “Why do you manage your business this way?” we usually hear one of the two following answers:
- Because Excel spreadsheets are free; or
- Because I don’t know what else to do
I would like to bust the myth that Excel spreadsheet record keeping is free and advise all SMEs that there is a much better alternative available.
Why managing your business is better with the right accounting software
Firstly, Excel spreadsheets are not really free. Whilst you may not have to part with any money to use a spreadsheet there are several hidden costs to consider, including:
- It can take a few hours to set up your spreadsheet template;
- It can also take hours every month to manually input the data; and
- Spreadsheets can be difficult to update when your business situation changes.
In my opinion, Excel spreadsheets are a time waster for SMEs.
As a busy business owner, your time is much better spent on trying to win more work and finishing jobs you already have on the go.
A few simple examples of how your time could be better spent than manually entering data into a spreadsheet include:
- Asking your friends for an introduction to their workplaces to potentially sell your product or service to;
- Placing advertisements on the internet and social media platforms to promote your business;
- Working on improving your product or service offering; and
- Enjoying the weekend with your family.
A much better alternative to Excel spreadsheets is using an online accounting package (such as Xero or MYOB). There are many benefits to using an accounting software package. A list of some of the more important benefits is below:
- (Almost) eliminate data entry – If you can set-up most of your income and expenses to be paid into or drawn from your business bank account this can be linked to your accounting software and will (almost) eliminate data entry;
- Easy to prepare GST & tax returns – Once the data coding is taken care of (it’s quick!) it is a very simple process to prepare the information for your GST or tax return each year;
- Easy to send quotes – Quotes can be prepared in front of a customer & emailed directly to them. This will save you going home to prepare a quote and you can discuss the price with the customer on the spot to help overcome any concerns;
- Easy to send invoices – Rather than sending invoices out once a week after completing jobs you can prepare invoices instantly immediately after each job is complete. This will help customers to pay your invoices sooner;
- Automated overdue invoice reminders – Don’t like sending reminders about outstanding accounts? Accounting packages can be set-up to generate automatic email reminders to customers who may have “accidently” forgotten to pay your bill;
- Payroll becomes simple – Payroll can be tricky with the tax withholding & superannuation requirements. Using a proper payroll function can dramatically save you time and will help you stay on top of these items;
- It’s interesting – As an accountant who spends all day in front of a computer and spreadsheets I’m reluctant to use the word “fun”, but compared to manual data entry on a spreadsheet it’s a pleasant experience; and
- Reviewing better financial information increases the chances of your business surviving – A recent US study showed that businesses which have access to timely financial information over a 5 year time frame are much more likely to survive than those who don’t (85% vs 50%). This is because businesses that regularly review their financial information are more likely to rapidly cut costs and/or change their pricing when things aren’t working. It also makes it easier for you to work with an advisor (accountant, business consultant) to determine what is happening in your business and make timely changes when required.
In my experience, entering data into a spreadsheet is boring, time-consuming and generally inefficient. It’s a big part of the reason why we regularly see businesses fall 2 to 8 quarters behind in lodging their Business Activity Statements.
Whilst there is a cost to having an accounting software package, most likely you have invested anywhere between $1,000 and $1,000,000 of your money into your business, not to mention hundreds of hours of your time. Increasing the chances of your business thriving, making it easier for advisors to help you and decreasing the boring, time-consuming recording keeping requirements, in my opinion, more than makes up for this expense.
I enjoy talking to my clients about the benefits of accounting systems and how understanding financial information can help business owners make better decisions. If you are thinking about switching over to an accounting package or about starting up a business, please feel free to contact me for a no obligation, no pressure chat about the best options for you. I would much rather assist you to make a good decision for your situation than try to pick up the pieces down the track.
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