Software vs spreadsheet: a contractor’s accounting conundrum

For many UK contractors and micro-business owners, the process of managing business finances has historically been a clunky Excel spreadsheet and a lot of patience.

But with an ever-changing small business landscape and the looming spectre of digital tax on the horizon, more and more people are looking past their spreadsheets and searching out more sophisticated technology to help them with their accounts.

So is switching from spreadsheets all plain sailing, or are there choppy waters to navigate when you’re moving to accounting software for the first time, asks Emily Coltman FCA of cloud accounting provider FreeAgent.

Mistake 1 * Assuming the software will do ALL the work for you

Although technology is becoming increasingly sophisticated, we’re not quite at the point where everything can be fully automated and your accounts just take care of themselves. So while software is designed to make the process easier, you still have to do some work too.

When approaching accounting software for the first time, the most important thing is to ensure that the information you’re entering into it is correct. This includes everything from inputting accurate bank data (if you’re manually entering transactions rather than using a di   rect bank feed), and categorising your expenses correctly, right through to simply making sure your company start and year-end dates are correct. By doing this, you’ll avoid making simple mistakes that could cause you a headache with your finances down the line.

Mistake 2 * Feeling overwhelmed by functionality

Many software packages include a variety of features -- such as integrated expense management and invoicing through to time tracking, payroll and tax forecasting. All of this can be a daunting prospect if you’re only used to a simple spreadsheet.

It can be tempting to only use the bare minimum of functionality rather than learning how to properly use new and unfamiliar tools. But remember that these features have usually been designed to save you time and hassle, so do make the effort to get acquainted with them!

Above all, don’t assume that accounting software will be too difficult or complicated for you to ever get the hang of it. Providers know that business owners don’t tend to have the same level of expertise as a professional accountant, so they develop their software to be as easy to use as possible.

Mistake 3 * Not setting a routine

Bookkeeping isn’t the most exciting task when it comes to running your business, and it’s easy to let it slip down your priority list -- especially if you’re facing the prospect of using a new method after years of your trusty spreadsheet. But the less disciplined you are, the more difficult it will become.

Carve out a dedicated time each week to do your basic admin (such as inputting expenses, chasing invoices and reconciling bank transactions) and stick to it. By making bookkeeping a regular habit, you’ll keep on top of your finances more easily while getting better acquainted with your software much faster.

Perhaps the biggest obstacle that puts people off stepping away from spreadsheets and giving accounting software a try is the issue of data security. It’s certainly not a mistake to be concerned about this -- data security is absolutely vital and any accounting software provider worth its salt will take it very seriously. These providers should be completely transparent about what they do with your data and how they store it, so take the time to do some research and put your mind at rest. Some good questions to ask include:

• How will my data be encrypted?
• How secure are the software providers servers?
• Does the software have additional security features, such as two-factor authentication?

Ok, how do I know if it’s time to consider ditching the spreadsheet?

The team behind any good accounting software will have experience of using spreadsheets -- and will understand many of the reservations that contractors and others business owners might have about using new technology, so they should be well-placed to help you if you’re a new convert. However, if you’re still among those who are firmly in the “my spreadsheet does it all,” camp, here are a few final things to consider:

• Spreadsheets are laborious. I know one business owner who admitted to wasting several days each year matching his bank figures up using a series of spreadsheets. When he started using a simple piece of bookkeeping software instead, he was able to do the same exercise in under five minutes.
• They aren’t secure. If you’re sharing spreadsheets with your accountant or with colleagues, it’s very hard to know who’s got the latest version. Online accounting software, on the other hand, always has one set of data that all parties can access securely and review at the same time.
• They’re prone to error. It’s incredibly easy to make a simple formula mistake that creates havoc with your figures, and these errors are not always easy to spot. A study recently conducted by Marketwatch found that more than eight in 10 spreadsheets contain mistakes. Whether it’s missing a row out or using an incorrect column or formula, there’s just too much that can go wrong when you use a spreadsheet for something as important as your business bookkeeping.

Final thought

‘My spreadsheet is far from flawless but accounting software is scary.’ It’s the type of statement we’ve heard from some contractors, but we’d urge you to be bold, because apps, platforms and widgets have the edge over spreadsheets in the long run.