In many cases, using a spreadsheet is perfect and sufficient for small businesses or the self-employed where you simply need a way to determine your income and expenses. There are situations, especially when you plan to do your own small business accounting, where it can be very beneficial to upgrade your record keeping from a spreadsheet to accounting software. I’ve listed a few factors to consider when determining if your spreadsheet is good enough for your accounting needs or if it’s time to upgrade.
What Is the Size of Your Business and How Many Transactions Do You Have?
In general, the larger the size of your business, the more beneficial it is to use accounting software. Very small businesses, freelancers, independent contractors, etc. They can usually get away with a spreadsheet if they only have a few transactions a month. However, if you have more than a few transactions, you’re probably wasting valuable time using the spreadsheet. Most accounting software allows you to create invoices very easily, which are then automatically recorded as sales. The invoice itself can then be duplicated very easily for future transactions. With a spreadsheet, you usually have to manually create an invoice and then post the invoice and payment separately for accounting and tax purposes. Similarly, if you have a series of expenses or invoices, you’ll need to enter the details manually, while with accounting software, there are various levels of automation that can help you reduce the time it takes to complete these tasks.
Do You Want to Track the Data of Your Customers And/or Suppliers?
If you have multiple customers who pay you after you send them an invoice (rather than immediately after receiving it), you should have a system in place to track which customers owe you money, which individual invoices have been paid, and be able to identify late payments. The easiest way to do this is with accounting software. Similarly, if you have suppliers from whom you buy goods or services, such as supplies or subcontractors who may be paid in the future, it’s important to keep track of this data, especially for cash flow purposes. Conversely, if you only have a few clients and your expenses are mostly paid as incurred, then a spreadsheet should suffice.
Do You Want to Analyze Your Data?
One of the great benefits of accounting software, aside from time savings and automation, is the ability to analyze data to gain insights into how your business is performing. You can view total sales, sales by customer, sales by product line, profitability, cash flow, sales tax, and many other reports. The data you can query will help you improve business decisions and ultimately improve your profitability and success. Analyzing accounting data, which requires quite advanced spreadsheet skills in a spreadsheet, and there is always the possibility of error.
Do You Have an Inventory?
Product-based businesses typically need to keep track of how much inventory they have on hand, referred to in accounting jargon as inventory. Accounting software, when structured properly, can help you keep track of how much inventory you have, automatically reducing inventory with every sale and increasing it with every purchase. It can also give you valuable insights into reorder points and provide data on which products sell better than others. All of this is much more difficult with a spreadsheet.
Talk to an accounting firm or the best accountants near me for more help.
Are You Unincorporated?
Unincorporated businesses, such as sole proprietorships and partnerships, typically only require income statement information, which must then be recorded on Schedule T2125 of your personal income tax return. This is easy to do with a spreadsheet because it simply requires you to add up all your income and expenses by category. Companies, on the other hand, are required to report information on the balance sheet, which includes assets, liabilities, and shareholders’ equity, in addition to the economic result. Balance sheets are more complex and require accounting knowledge to compile using a spreadsheet while accounting software will automatically generate a balance sheet. Therefore, accounting software is recommended if you are enrolled.
What Is Your Time Worth?
One of the benefits of accounting software is the time efficiency that is achieved through automation. They are designed to simplify the financial data entry process and are often aimed specifically at small business owners who are not accountants. It can be helpful to determine how much your time is worth to see if using accounting software is worth the extra cost. If you’re only making a small profit and have more time, using a spreadsheet might make more sense.
Talk to an accounting firm or the best accountants near me for more help.
Do You Have Other More Complex Reporting Needs?
If you’re registered for sales tax, tracking your data in a spreadsheet is certainly doable. However, accounting software makes it much easier and also generates a report which can then be written directly into a VAT report.
Having employees requires you to pay withholdings to Revenue Canada. While this can be calculated manually, it’s generally best to use payroll software to do this.
Some businesses have special reporting needs, such as analyzing sales by region or customer, payroll, commission, or product listings. The accounting software tracks all your data from the start and allows you to create customized reports for these purposes, saving time and ensuring data accuracy.
Need Historical Data?
Having all your data in one place can be very useful for reporting purposes or in the case of an audit. This is much more difficult with a spreadsheet, where data is usually compiled on an annual basis while accounting software will have all of your data from the start. Additionally, some accounting software allows you to attach source documents such as receipts and invoices to the transaction, making it much easier to keep track of everything related to the transaction in one place.
In such cases, it is always recommended to get in touch with an accounting firm or the best accountants near me, who would be able to take care of this work for you.
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