Bookkeeping with Excel - Pros & Cons for Small Businesses

Bookkeeping is vital for any small business. It helps with budgeting, taxes, maintaining records, and tracking business goals. That’s why it’s so important to have a system in place that simplifies this process and keeps you compliant. 

Microsoft Excel is a popular choice for many businesses that are just starting out. Its familiar interface, flexible formulas, and affordability make it a helpful tool for beginners. There’s a reason so many smaller businesses look to Excel for their accounting needs.

If you’re considering whether Excel is the right tool for your business accounting, we’ll reveal everything you need to know in this guide. Let’s dive deeper into the pros and cons of bookkeeping with Excel. 

Why use Excel for small business bookkeeping?

Using Excel for bookkeeping is a go-to choice for many small businesses. And for good reason. Although not directly designed as dedicated accounting software like QuickBooks, Excel is great for basic bookkeeping. With custom spreadsheets, simple formatting, and built-in formulas, it makes financial tracking simple.

Excel allows you to create user-friendly tables for accessible data visualisations and comes with a range of customisation options so you can tailor your reporting. Plus, you can efficiently track expenses, invoices, cash flows, and more with pre-made templates. Essentially, Excel has most of the things a small business needs for basic bookkeeping. 

Pros of using Excel for bookkeeping in small businesses

When organising data and creating basic financial reports, Microsoft Excel is your best friend. It has been specifically designed to house and track data at the most rudimentary level, making it versatile, customisable, and easy to use. In addition to the platform’s affordability, it's easy to see why many small businesses turn to Excel for bookkeeping.

Cost-effectiveness

With Microsoft’s Business Basic plan starting from £4.90 per user/month, Excel is a cost-effective solution for small businesses. It offers a quick and easy way to track your finances at an affordable price. There’s no need for any subscription fees as all you require is a phone or laptop to start bookkeeping with Excel.

For more advanced usage or if you want to download Excel directly onto your desktop, Microsoft offers multiple other plans to suit your requirements. We’d recommend the Microsoft 365 Business Standard at £10.30 per user/month. Make sure you compare the different plans to find the right one for your business.  

Customisation and flexibility

One of the great things about bookkeeping with Excel is its flexibility. Whether you start with a premade spreadsheet or set up your own, Excel can be completely customised. Create graphs that match your company branding and design tables with your own formulas to fully tailor your data management to your unique bookkeeping requirements. 

Accessibility and familiarity

If you’re a sole trader, freelancer or a small business without the means to access specialised bookkeeping software, Excel is the perfect choice. It’s widely used throughout the world and is easily accessible, making it one of the most convenient options available. 

A familiar interface with basic functionality might just be the ticket to your accounting needs. As a small company, you won’t have to worry about training your team on unfamiliar software, and Excel can be set up within minutes. It’s easy to see why Excel bookkeeping is so popular.

Cons of using Excel for bookkeeping in small businesses

Despite having a number of benefits, there are some limitations when it comes to using Excel for small business bookkeeping. As your company grows and your financial reporting becomes more detailed, manual data entry and restrictive automation can impact productivity within your team. 

We’ve looked at the pros of using Excel bookkeeping software. Now, let’s look at the ways your small business might meet complications when using this tool.

Risk of human error

Manually inputting data into an Excel spreadsheet is not only time-consuming. It can also increase the chance of mistakes occurring. Human error is natural, especially when it comes to numbers and data entry, but this could lead to inaccurate financial reporting. This ultimately leaves you with an incorrect picture of your financial health, resulting in poor decision making for your business. 

Limited automation and scalability

Excel does come with some automatic features. For example, if you set up your own report, you can add the custom formulas that work best for your business and Excel will automate the calculations. However, this still requires manual input. 

This means there are limitations with Excel’s ability to automate tasks, especially when handling large amounts of data as your business expands. Plus, you can’t always auto-sync with third-party apps, which may make it harder for you to track your expenses and other financial information.  

Security and data management concerns

Many dedicated accounting tools are available with built-in security measures. This includes keeping financial data private and protected, ensuring all your data is backed up and stored safely, firewall protection services, and more. 

Unfortunately, Excel doesn’t offer the same level of security as more advanced pieces of software. Though there are some measures available, such as file encryption and access restriction, it doesn’t come close to the offerings of other applications such as QuickBooks. 

Key Excel templates for small business bookkeeping

If you’re looking for a way to simplify your bookkeeping tasks, there are many free Excel templates available. These templates can be found through various resources on the web, and we even have our own list of Excel business templates for you to browse. 

From invoices to expense reports, using a premade template means minimising the steps needed to implement these processes. There’s no need to start from scratch because Excel bookkeeping spreadsheets have you covered. 

Here’s a breakdown of some of the most essential business templates for your accounting needs. 

Invoice templates

Invoicing a client can be difficult, especially if you’ve never done it before. Small business invoice templates can make a difference when managing your finances. They’re great for recording transactions and keeping payment records organised. You can even find hourly invoice templates for freelancers, which is great if you’re just starting out. 

Simply add the details of the items or billable hours for which payment is required. When every item has been listed, including quantity and rate of pay, use the AutoSum formula to calculate the total owed. Make sure you include your bank details and personal information too. Then you can send your invoice off to request your funds. It’s as simple as that.

Balance sheet template

Effortlessly track assets, liabilities, and stakeholder equity with our balance sheet template. As a key statement required for any business, a balance sheet shows your current funds so that you can properly assess your financial position. 

Our template makes it easy to detail and monitor your resources, while automatically calculating total liabilities and equity at the end. Using a template for this process does require some manual input, but ultimately helps with accuracy, efficiency, and upholding consistency across your accounting tasks.  

Income statement template

Monitor your profits and losses across a set period with an income statement template. This includes listing any revenue from sales as well as operating expenses such as salaries and advertising costs. Tracking this information is key to the success of your small business as it showcases your financial health. This way, you can figure out what the next steps should be in your decision making. 

By using a premade bookkeeping Excel sheet for this data, you can keep a detailed record across multiple financial quarters. It helps with noting any upward or downward trends throughout the year, so that you manage expectations for the future.  

Expense report template

For any business, it’s best practice to keep a record of any expenses incurred over time. This usually includes things such as travel costs, hotel stays, meal allowances, and even office supplies. In most cases, the money spent on these areas needs to be reimbursed. 

Enter our expense report template. By allowing individuals to detail any essential business costs and expenses, you can budget more efficiently. You’ll be more aware of spending patterns and can stay on top of any additional reimbursements. Utilising the AutoSum function, this Excel template does all the hard calculations so you don’t have to.

Cash flow statements template

An important part of accounting for a small business is keeping track of the inflow and outflow of cash. Using a cash flow statement template can help simplify this process. From investments to cash sales, payroll and rent, there are a variety of avenues for money to come in and out.

By monitoring this data, you can plan for certain expenses instead of coming up short. This will help to ensure liquidity and keep you in a more secure financial position. Simply input all this information into our template, customising the rows and columns to suit your small business, and Excel will calculate the totals.

Pay slip template

When it comes to bookkeeping for your small business, arranging pay slips is one of the most important parts of the job. It’s used for payroll tracking, calculating wages, and keeping records of employee payments. 

Our pay slip template is user-friendly, with only one spreadsheet for you to fill out. All you need are the employee details, date, and rate of pay. You may also need to enter additional information on holiday pay and overtime etc. but essentially, it’s one the most straightforward accounting tasks. 

Excel stock template

One of the best ways to manage product stock is with our Excel stock template. Track and maintain stock levels so that you always meet the demand of your customers. Streamlining this process will also help with future forecasting, ensuring you don’t over or under buy for certain products. 

Detailing your stock information with an Excel template removes some of the manual work too. This template is especially beneficial for retail companies that sell stock take as it helps you keep on top of your products. 

When to consider upgrading from Excel to dedicated bookkeeping software

Although bookkeeping with Excel is a great solution for small businesses just starting out, it may not be the best for a growing business. As your company scales and the volume of transactions increases, you may require a greater level of security, automations, and overall accounting capabilities. 

Switching from Excel to dedicated accounting software like QuickBooks is the next step in your financial journey. It’s more efficient, has greater scope for automation and integration with other software, whilst also being able to grow with your business. 

QuickBooks removes many of the manual data entry requirements of Excel. With real-time financial tracking and detailed analysis, it makes your accounting more productive and efficient. Plus, it comes with advanced security measures such as multi-factor authentication, firewall protected services, and 24-7 surveillance to prevent data breaches.

So, if you’re considering upgrading, QuickBooks is the perfect all-rounder when it comes to the best bookkeeping software.

Is bookkeeping with Excel right for your small business?

Excel bookkeeping software is a practical choice for any small business. It offers basic data management, has a familiar and user-friendly interface, and it’s affordable. With a wealth of templates available across the web, Excel is a solid choice for basic accounting. 

However, its limitations around automations and security do pose some complications. And if you’re part of a growing business, Excel might not be cut out for your scalability plans. 

Ultimately, you should always do your research to find the most suitable accounting tool for your company. The most important thing to remember is compliance and tracking—as long as you’re doing this correctly, you’re moving in the right direction. 

To find out more about accounting for small businesses, take a look at the different plans QuickBooks has to offer. You might just find exactly what you’ve been looking for.