Spreadsheets are a widely used tool across the business world, and are utilised by the finance teams of many manufacturers. But a lot of these companies may be holding themselves back without realising it, and are perhaps unaware of the other options available when it comes to supporting their accounting tasks.
In this article, we highlight the drawbacks of spreadsheets, as well as the benefits of using accounting software instead. We also explain how to make the switch from the former to the latter, and detail which kind of systems are ideal for manufacturers.
Why do businesses use spreadsheets?
A lot of businesses use spreadsheets when they are just starting out, or when they are still relatively small. This makes sense, as it is the logical step up if previously accounting on pen and paper. Spreadsheets may be continuously suitable for some manufacturers, depending on their particular needs and goals.
The most popular spreadsheet system is Excel. It helps you to take advantage of instant formulas, and can automatically complete difficult calculations. Spreadsheets can be used by anyone, and have a multitude of capabilities, which can be a positive trait. But as we’ll come onto, the lack of structure involved with this system can create issues.
As with the progression of anything, there comes a point when one system won’t fulfil your ambitions anymore, and you must move on to something more sophisticated (if you want to continue to grow). A spreadsheet will likely only take you so far, which is when accounting software can help you to make the step up.
What are the drawbacks of spreadsheets?
Your financial data is arguably your most precious resource. If this sensitive information were to fall into the wrong hands, it could lead to negative outcomes. In the case of spreadsheets, they are often saved on physical computers, meaning the information could be vulnerable to hacking.
There’s a chance the file could be corrupted or stolen too, which could lead to a loss of business. Not only is your own data at risk, but if you don’t handle customer data in a secure manner, there could also be ramifications from a GDPR perspective.
It can create issues if an Excel document is accessible to all employees. It is sometimes possible to lock a spreadsheet, but it can be difficult to govern exactly who has been given access. Spreadsheets are not known to have the best audit trail either.
Although Excel takes care of some tricky maths, it’s still a person putting the numbers in, which means mistakes can be made. It ultimately puts a lot of responsibility on those controlling the spreadsheets, and can be very costly for your business success if errors take place.
Spreadsheet maintenance can involve a lot of copying and pasting, and other manual processes. All it takes is one accidental click of a button and some key data could be altered in an incorrect way.
Not only do manual processes lead to a higher number of mistakes, but it’s also extremely time-consuming. Employees will be inundated with repetitive data entry. This could lead to poor job satisfaction due to its tedious nature. It’s not feasible to update a spreadsheet every second of every day either, meaning financial data will often be out of date.
Lack of centrality
With Excel it can be difficult to maintain one version of the truth. If everyone in the finance team is saving their own version of a document, there’s no knowing who has the most recent incarnation.
Then there’s the wider issue of incorporating information from other departments too. These separate functions may have their own unique systems. Time must then be spent trying to integrate their data into your spreadsheets.
Expertise is required
A spreadsheet is capable of a lot. But you always begin with a blank slate, meaning it can take a long time to build up to its true potential. You may have to spend lots of money hiring experts in order to get the best results (as the everyday employee will not know about every single trick and feature).
It can be difficult just to interpret the data in spreadsheets too. And with no pre-built structure, it’s not easy keeping on top of every income and expense that occurs.
Spreadsheets vs accounting software
So, how does accounting software stack up against Excel? Many of the limitations highlighted when discussing spreadsheets can often be reversed if you select the right solution.
With any investment, you should ensure such it is financially feasible for your business (and that it will generate substantial returns). Here are just a few of the benefits gained from putting an accounting system in place:
Dedicated software has built-in functionality for various accounting tasks. This means that your finance team don’t have to start from scratch, as a template is already in place. There are specific places to record relevant information, making it easier to find data.
Useful reports / dashboards
Many accounting systems will have built-in reports and dashboards too (that are ready to use straight away). Reports can highlight your level of performance in certain areas, whilst dashboards can be useful for providing an overview of business health. These insights could dictate necessary changes.
Simple to use
Accounting software is notoriously easy to use. Most of the heavy lifting has already been taken care of. This means you will save time, as it doesn’t take long to get staff trained up. And you also save money, as you don’t need to hire an expert to understand the information.
If you opt for a cloud-based accounting solution, you will be able to update your finances at any time, and from any place. This means that your data will be up to date. Cloud systems are generally safer too. This is because data is backed up on an off-site server, and the software is accessed via the internet (rather than being installed on specific machines).
As well as enabling layers of accessibility, accounting software makes it easier to hold employees accountable too (as there is usually a clear audit trail). This makes it possible to root out any mistakes, as well as any malicious internal activity (such as fraudulent behaviour).
Many of the aspects we’ve already mentioned naturally lead to better data. With fewer mistakes being made (due to less manual input), financial data becomes more reliable. A centralised platform helps to reduce inconsistencies too, as there is only one version of the truth. And as we’ll come onto later, these systems can sometimes facilitate automation, which in itself reduces human error even further.
How to switch from spreadsheets to accounting software
Choose the right system
When making the step up from spreadsheets, the first thing you need to do is select an accounting solution that ticks all the boxes. The easiest way to judge this is to think about the needs of your business, as well as the obligations of your finance team. This way you’ll know what functionality will be useful, and you can specifically search for these characteristics.
Choose the right provider
If the system fits the bill, the other main thing to consider is the actual software provider. With reviews online, it’s never been easier to determine how reputable a company is. Choosing the right technology partner will possibly put you in good stead for the long-term, as they will likely keep their system up to date with the latest industry trends.
Switch at the best time
Timing can be everything when adopting new technology. Ideally, you’d like to transition from one method to another at a time of minimal disruption (perhaps a quiet time of year). Or you could choose to switch when things are going well financially, as this is likely a good time to invest.
Decide whether to migrate data
It’s worth considering whether to bring your old data across from Excel. It may be worth seeking external advice on what information you will need going forward, and whether it is feasible to start afresh.
Many software providers will offer some sort of service to migrate your data. Either way, there’s no rush to delete your old spreadsheets, as you never know when you might need to refer to them.
Give employees training
Once an accounting solution is being implemented, it’s important to give your finance team any training that will help them to hit the ground running. Many of the best systems will be intentionally easy to use, as simplicity is part of the appeal.
However, many providers will offer you the chance to acquire training if necessary, in order to make the transition as seamless as possible. It’s key to stay up to date as the system evolves too, so that you can always reap the maximum rewards.
Which accounting software to use
A good place to start is choosing an accounting system that is ICAEW accredited. Advanced’s Manufacturing Software holds this prestige, and also has the accounting functionality that any finance team would benefit from. This includes unified ledger accounting, multi-currency accounting, customer and supplier invoicing, budgeting, cash flow management, asset management, project tracking, payroll processing and more.
The system’s true power comes from the fact it is an all-encompassing business management solution, meaning that it unifies all your company’s functions in one place. This allows you to have a centralised pool of data and creates a cohesive / transparent work environment.
The solution has dedicated features for e-commerce, stock control, production planning, contact management and more. This means that the actions that take place in one department will influence results in others, allowing you to gain a degree of automation.
If an online sale takes place, not only will it influence your stock levels and production plans, but it will also update your finances too. The same goes if you purchase materials from a supplier, or invest in a new batch of machinery. Financial data will update accordingly.
Automation frees up a lot of time and improves employee satisfaction. It also increases efficiency to a large extent. Higher efficiency means that your overall performance is better, and you’ll quite simply be more productive.
It equips you with a higher quality of data too, which allows your finance team to conduct powerful forecasting. Having knowledge of the times ahead means that you can make informed decisions. You can take bold actions that are less risky too. Enhanced processes mean that your business can grow faster than ever, in a way that is comfortable (as the system will grow with you).
If you still want to use spreadsheets occasionally, Manufacturing Software actually integrates with Excel, allowing you to export financial data to your workbooks. This means that not only can you take advantage of the accounting system’s own sophisticated reporting, but you can report dynamically, and essentially power your spreadsheets with highly accurate data.
If you’re looking to unshackle your business from the limitations of spreadsheets, and want to move over to a fully-fledged accounting solution, take a closer look at our Manufacturing Software (which is perfect for small to medium-sized manufacturers).