According to various sources one of the major competitors for business accounting softwares is Microsoft Excel. The reason for that is two-fold: Excel is widely available and can be easily manipulated to perform recordkeeping and analysis. According to IRS publication 583, “Except in a few cases, the law does not require any specific kind of records.” Business owners can choose any recordkeeping system that clearly shows income and expenses. If the proper controls are put in place, elegant, efficient and cost effective business recordkeeping systems can be produced using Microsoft Excel. The following are eight reasons Excel can be used in lieu of pre-packaged accounting software.
Microsoft Excel is a dynamic tool that can be used to create whatever the user desires. When I administer training sessions I often compare Excel to an artists’ canvas. An artist has unlimited creative latitude to fashion his\her masterpiece. So, with Microsoft Excel the final product or masterpiece is only limited by the creativity and skill of the user. In general, there are always best practices to adopt to insure the share-ability and decipherability of workbooks. One best practice is to document appropriately. This step ensures that the strength of being a free form tool does not turn into chaos. All the accounting tools on the market have been created with a specific purpose or intent in mind. Many pre-packaged tools cannot be altered by the business owners to suite their specific business needs, style of work or thought process. Inevitably, every software is lacking in some respect. No piece of software can be all things to all people. However, a system based in Excel gives the business owner the latitude to customize as needed.
Microsoft Excel is ideal for data analysis. Data analysis is the process of transforming data into actionable information. Often data and information are used interchangeably, however they have very different meanings. With the help of Excel, business owners can quickly discover the primary variable that drives sales, develop fact based revenue scenarios and determine the best price for products, to name a few. Excel is one of the few widely available tools that can be used to aggregate and analyze data sets from various places. One area of Excel that I never get tired of extolling is its ability to perform correlation analysis. Correlation analysis is the process of determining if two or more variables have a relationship and the strength of that relationship. For example, an analysis of golf course rounds coupled with weather related data has revealed that when the temperature has reached 95⁰ people have stopped attending. Armed with that information, the golf course operator sets up a system to email discount pricing to previous patrons once the temperature exceeds the 95⁰ mark. Such informational gems can be sifted out of organizations using the correlation tool available in Microsoft Excel. Applying that same technique to various organizations can yield important information with the potential of multiplying revenue.
Microsoft Excel has 73 chart types that can be used to tell a story. That does not include the combination charts that can be made. Each chart has the ability to display accumulated data in an easily digestible manner. The right chart(s) attached to a methodical recordkeeping system can yield actionable information to assist in the daily decision making processes of business owners.
Support Strategic Decisions
Microsoft Excel can support strategic decisions better than many off-the-shelf software, due to customization. Many businesses cannot be pegged against generic benchmarks, such as those available in off-the shelf accounting software. For example, a Marketing firm would need to track metrics related to the success of marketing campaign. Microsoft Excel can be used to measure impressions that a campaign produces and the cost per impression, to name a few. It is always a good practice to pair performance related data with the financials to determine a Return On Investment (ROI). Pairing those datasets is one of the best ways to yield actionable knowledge about one’s business. In that instance and countless others, custom benchmarks would be required to support strategic decisions. In business, questions typically center around pricing. Is the right price being charged? What will the market allow? Should pricing be increased? Very often, organizations look to their competitors to view their pricing structure. Microsoft Excel can help greatly with that by automatically collecting competitor pricing data and analyzing it. The final product can be used as a component to a decision on pricing. A perfect example is a local retail bookstore. Local bookstores compete with large corporations such as Amazon, Barnes & Noble, and Borders Books. A local bookstore using Excel can implement and compare its book prices to those of the large chains quickly.
Simplicity is still paramount, regardless of what system is used. The rows and columns associated with a simple spreadsheet is the most intuitive system on the market to begin recording revenue and expenses. Revenues and expenses can be recorded in tabular manner. Very often, user interfaces designed to minimize complexity and reduce effort achieve the opposite.
Microsoft Excel can be used to automate various business tasks. Visual Basic for Application (VBA) is a powerful programming language used in Microsoft Excel to execute tasks quickly and accurately. That feature can be used to generate budget reports, extract data from various sources (ex. Internal systems, Internet etc.) or manage payroll. In addition, small business owners can automatically create financial statements and populate a schedule C. A schedule C is a document required for small business owners to file taxes. In addition automation can be used to eliminate the need for bank reconciliations. Very often users of Accounting softwares are required to perform bank reconciliation. That reconciliation process involves comparing bank transactions to data available on that software. Any differences between the two need to be reconciled or fixed. In most instances, the bank data reflect the “truth” and everything in the Accounting software or the like is altered to fit that “truth”. That entire process that can take hours for some organizations can be completely eliminated or drastically reduced if the bank data becomes the source. A system that automatically downloads data from the bank into Excel can be created to eliminate the need for reconciliation.
Quicker Learning Curve
The learning curve associated with Excel is much quicker than that of Accounting software. Due to the wide spread usage of Microsoft Excel and the plethora of freely available resources, many people are familiar with basic usage. That familiarity gives Excel an advantage over a software on the market.
Up-Front Costs, No Subscription
Cost is always a factor to be included in any business decision. Many Accounting softwares follow a subscription based model. That model requires a monthly payment for the use of a web-based version of the software. That solution that may seem cost effective in initial stages will become financial burdens in the future. At its core, a recurring payment structure will eventually cost more than one-time upfront payment structure. A savings to business owners can be garnered by implementing an Excel based system that only requires up-front costs.
Pre-packaged Accounting software lacks a few elements which Excel meets beautifully. To summarize Excel is a free form tool which can support business decisions at a fraction of the Accounting software costs. Excel is a dynamic tool that can be manipulated to cater the needs of business owners better than any pre-packaged device. A business owner I met recently put it best when he said, “I need something that fits my madness”. To paraphrase the English idiom, Excel can be “the method for the madness.”