Machine learning in accounting is changing how startups manage their finances. Learn how it could apply to your business.
May 26, 2021
If you’re thinking about using Excel for your company bookkeeping, there are a few things to know. While Excel is useful for some specific bookkeeping tasks, we strongly recommend against building an entire bookkeeping system in Excel: It won’t provide your business with a good foundation to scale, and you’ll likely find that this method causes more problems than it solves.
Read on to learn how Excel bookkeeping measures up against accounting software and which tasks it does make sense to manage with spreadsheets.
When you’re just starting a business, using Excel spreadsheets to build your bookkeeping system can seem appealing. Because most Microsoft Office packages include Microsoft Excel as standard, and Google Sheets are free to any person with a Google account, it likely won’t cost your business any extra money—and you won’t need to commit to an additional contract. Plus, spreadsheets are common tools with which most people already have some experience, so you won’t need to spend much time learning how to use them for bookkeeping.
If your startup is in the very earliest stages and only needs to handle a few cash transactions, Excel can be a useful stop-gap while you’re choosing and setting up specialized accounting software like QuickBooks.
However, Excel bookkeeping can limit the growth of your business in four key ways, so we recommend implementing business accounting software as soon as possible.
A number of records, reports, and organizational methods are essential to a startup bookkeeping system, including:
If you manage your bookkeeping with spreadsheets, you have to build each of these manually. Even with Google Sheets and Excel templates available to download, you still need to customize your bookkeeping spreadsheets; there is no one-size-fits-all Excel bookkeeping template for every startup or small business. Creating all the necessary records and setting the right formulas is a significant time investment.
Although you won’t need to spend time learning a new system, Excel bookkeeping actually creates more work for you or your bookkeeper on a day-to-day basis. Formulas can automatically calculate some values, but you will still need to manually enter most data into the Excel sheets.
For growing businesses that are processing increasing numbers of transactions, this can quickly mean spending several hours each week on data entry alone. Manual work is much more error-prone than automated processes, so you will also need to factor in time to review your bookkeeping and fix errors, such as data entry errors or missing records. In comparison, accounting software can automate many bookkeeping processes, allowing you to spend less time (and money!) on manual tasks and keep more accurate records.
There are two main approaches to keeping financial records: single-entry and double-entry.
Most businesses should use a double-entry system: Unlike single-entry accounting, double-entry records give sufficiently detailed information to build key financial statements. However, this level of detail is very difficult to maintain with a simple spreadsheet. For each transaction, you would need to manually enter the data twice, greatly increasing both the completion time and the opportunity for human error.
If you start using an Excel bookkeeping system and later switch to accounting or bookkeeping software as your business grows, you will need to make two key decisions:
In an ideal world, it’s preferable to transfer complete accounting records from the company bookkeeping Excel sheets to accounting software. Having detailed historical data allows you to run comparative reports against previous periods—for example, comparing the revenue generated in Q1 of 2021 with Q1 of 2020. However, this process can be very time-consuming and resource intensive based on the amount of data to transfer, so first conduct a cost-benefit analysis to assess if it’s worthwhile for your business. To avoid either a fragmented financial record or a lengthy transfer process, we recommend managing your bookkeeping in accounting software as early as possible.
While building a complete Excel bookkeeping system isn’t a long-term solution, Excel spreadsheets are helpful for three individual bookkeeping tasks.
If your business uses accrual accounting (which you should!), you will need to build revenue recognition schedules to map out when you can recognize portions of customer income as revenue. Excel spreadsheets are a useful tool for creating revenue recognition schedules that are quick to update. To build a basic revenue recognition spreadsheet, create columns for each month of the year and rows for each customer from whom you have deferred revenue. You can then record the portion of revenue you will earn each month from each customer.
To help with bank and credit card account reconciliation, you can use an Excel spreadsheet to show the money entering and leaving each account. This is particularly useful for revealing transactions that are in transit. For example, when a customer makes a cash payment or check, you immediately record the payment in your accounting software. However, while the money is in transit to the bank and hasn’t yet arrived in your account, the cash amount recorded in your accounting software will not match the amount in your bank account. To identify and explain any discrepancies, export bank statements and credit card statements from your online banking system into an Excel spreadsheet for comparison with your accounting software.
While several specialist financial modeling software options are available (for example, Quantrix), most startups use Excel to predict and plan their financial future. Using your actual financial data and information on general industry performance, build a forecast of the startup’s income and business expenses for defined future periods. You can create multiple spreadsheets to model how the business would perform under different conditions and use this data to build projected versions of the key finance statements.
Is the process of navigating the complexity of new accounting software deterring you from taking the leap? Or are you uncertain which accounting software your business needs? Zeni’s team of finance experts is here to make starting with accounting software a breeze.
Zeni is a modern, full-service finance firm that can handle all your bookkeeping, accounting, and CFO needs. We can advise on the right accounting software for your startup, set up your bookkeeping system in the best way to support the business as it grows, and maintain up-to-date finance records. Zeni’s solution is designed with startups in mind, including pricing plans tailored to suit your budget. Plus, if you have queries about accounting processes or financial management, we’re on hand to help with a 24/7 financial concierge to answer any questions.