Going it alone with Excel may seem easiest for keeping track of your money in the early days, but it has its pitfalls. How does manual bookkeeping compare against accounting software in the crucial first 12 months of business?
For anyone in their first year of business, every day is a big day. Long hours, juggling demands and steep learning curves.
It’s a period when many start-up owners find that so much competes for their attention, they are forced to be selective about where to put their time.
That’s why deciding on day-to-day accounting software tools is so important. The debate continues about whether it’s more feasible to go it alone with Excel spreadsheets, as more than half of business owners do (2) – or even pen and paper, as 21 per cent do in their first years (3) – versus the many financial management software (FMS) packages on the market.
Excel or FMS?
There’s no denying that Microsoft Excel is an excellent spreadsheet tool. Those who have an understanding of bookkeeping and the programme can use it as a “blank canvas” to create virtually unlimited reports and graphs.
However, as accounting software, it is not without its risks. The programme is prone to human input errors because the formulae must be entered manually and can be wrongly linked. A missed negative sign or a misaligned column can throw out your accounts and waste precious time to fix, and at worst cost serious money.
To ensure accuracy, many small business owners start looking for a different solution.
Managing customer interactions
Your first dealings with your early customers are what set the pattern for your business’s success. So when calls and enquiries are pouring in, basic tasks such as sending estimates or payments need to be quick and simple. FMSs can cut through the admin, creating estimates and invoices that you can email straight from the program, and later will automatically reconcile them as paid invoices.
A FMS also allows you to automatically pull in data from your bank account, saving vast amounts of inputting time and data entry errors. The software also learns from your patterns of behaviour to classify transactions and build useful analytics.
Your first year
In the first year, you’ll only just be establishing and understanding patterns in your day-to-day running. An FMS – especially one that’s linked to the cloud as many now are – can offer valuable insights in real-time, giving a snapshot of your income, expenses and profit and loss.
Many also have a feature which allows you to do “soft” reconciliations daily, making it extremely easy to see double entries, and always know what is sitting in your bank account. Month-end reports become a simple half-hour process.
Whichever system you choose, be sure to set up solid accounting habits that will leave you free to focus on what you went into business for in the first place – delivering for your customers and making money.
To see how FMS can smooth out the challenges of your first year, sign up for a free trial with QuickBooks. Visit http://www.intuit.co.uk/quickbooks-accounting-software/
Notes and references
1: Intuit report “The Three Year Glitch: Why getting it right early is the key to start-up success” http://www.intuit.co.uk/about/three-year-glitch.jsp#sthash.UBzuplju.dpuf, YouGov survey, page 16
2: Illuminas report for Intuit, September 2014, page 4
3: “The Three Year Glitch”, YouGov survey, page 16