Let’s say the person spending 10 days per year doing accounting makes an annual salary of $57,000 (approximately the average salary for employees with a college degree in the US).
If they spend 10 days out of their year working on the books, then $2,192 of their salary goes towards accounting. And that doesn’t even account for the missed opportunity costs of not being able to spend that time on sales, marketing and hiring.
With better tools, the amount of hours spent on accounting goes down and the time-value cost decreases accordingly.
Spreadsheets can’t accurately predict cash flow
More than 80% of businesses that don’t survive cite poor cash-flow management as a primary reason (source). It’s not that these businesses aren’t making money, it’s that it gets increasingly harder to forecast and budget as the company grows.
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When Michael Leung started SleepyPod, a company that manufactures pet carriers, it was easy to forecast how much money the company would have a few months down the line.
But as SleepyPod grew, Michael had more balls up in the air. He was selling to different retailers at different prices, shipping internationally, and managing a growing company.
This made cash-flow more complex, which made it harder to make major decisions about the business. When he started using Quickbooks, Michael could tell at a glance everything that was owed to the company and everything they owed. Nothing slipped through the cracks.
As he says, “It paints a really good picture so we can make our financial decisions, whether it’s time to buy more inventory, move to a larger location, scale back, or whatnot.”
You’ll wind up with dueling spreadsheets
One of the toughest problems with Excel usually isn’t noticeable until it’s too late: inconsistent spreadsheets.
This happens all the time. Because Excel isn’t a central hub for all your accounting, budgeting, and inventory needs, you need to manually add and change data in multiple places.
Businesses of all sizes face this problem. But the bigger a company gets, the more likely they are to encounter it. According to Ventana Research, around 44% of enterprise-sized companies grapple with inconsistent spreadsheets.
The real problem with numbers not adding up is that it’s hard to spot the problem. While it is possible to reconcile two spreadsheets, if an error was made back a few months ago, it’s difficult to know which spreadsheet is right and which is wrong.
Small errors compound
Spreadsheet errors tend to have a waterfall effect.
If even one cell in your spreadsheet is wrong, it can have huge repercussions down the line. Mess up one input with a wrong digit, misplaced comma or decimal point, and your spreadsheet will use that to miscalculate other computations.
Back in 2003, a small spreadsheet error cost Canadian power generator TransAlta $24 million. According to The Register, “chief executive Steve Snyder said the snafu was ‘literally a cut-and-paste error in an Excel spreadsheet.’”
Maybe you won’t lose $24 million, but human error costs businesses real revenue all the time. The risk of underestimating your monthly inventory expenses or overstocking your inventory can create huge problems for small businesses.
Spreadsheets don’t scale
Excel might work when you first start your business. But as your company grows, things change—you might change your prices, raise financing, roll out a few new products or hire a few people. Before you know it, your spreadsheet can’t keep up.
There are plenty of business challenges you can’t control. This isn’t one of them.