I often see bookkeeping and accounting firms offering free spreadsheet downloads which clients can use to keep their accounts. And often they're really really good. All those whizzy things you can do with a spreadsheet are probably the reason I became an accountant in the first place. I LOVE SPREADSHEETS, but there are some really important reasons you'd be better not to use one for keeping your accounting records.
Spreadsheets can get way too complicated
When you start out in business, lots of businesses keep a list of sales and a list of expenses. This is fine until the business also wants to understand who their business's biggest customer is, or how much they spent on advertising last month. If you're great with spreadsheets you'll probably know some formulae which can help you get this information out of your list, but all of these extras and work-arounds quickly get complicated and you spend much more time on your spreadsheet than you want to.
I've seen incredible spreadsheets. I love the way you can use formulae and macros to automate things and give you lovely graphs and summaries of your data. But when they break, often nobody knows how to fix them. Sometimes even the person who built them can't fix them. And that's not great when you're relying on something to keep an accurate record of your data.
Spreadsheets are prone to manual errors
It's easy to incorrectly type something into your spreadsheet, or to enter a formula for a total which doesn't pick up the right range of cells. These errors can lead you to misunderstand some of the important numbers about your business.
We prefer accounting software
Accounting software has changed since the days a finance person sat in the corner of the office with secret software only they could touch on their PC. Accounting software is now on the cloud, on your phone, and your bookkeeper or accountant can log in remotely to give you a hand. It's easy to use (with a bit of training) and give you really useful information at your fingertips at the click of a button.
Spreadsheets will be phased out under Making Tax Digital
You might have heard that something called Making Tax Digital is coming. HMRC have an initiative to get us all filing tax returns online using compatible software, and spreadsheets won't be good enough any more. Getting accounting software will make sure you're ready to go when MTD is live.
Getting into good habits now is a great idea
We predominantly work with startups and we think getting into good habits at the start of running a business means your processes will be future-proof. We recommend using accounting software rather than a spreadsheet from day 1 to save yourself a big headache several months down the line when your spreadsheet becomes to complicated or the information it provides you isn't sufficient for your needs any more.
Accounting software can be free too
You might be favouring a spreadsheet because it's free, but accounting software is very affordable too, there are even some free packages out there. At the time of writing, basic accounting software which we think will be suitable for a sole trader starts with prices from £7.20 (inc VAT) per month. At the price of a coffee and a sandwich per month, we don't think that can be argued with. Most of the large software providers are offering free trials or discounts at the beginning too, a great reason to find one which works for you.