Spreadsheets have been around for decades and have managed to gain the trust of many teams who use them as their go-to tool for organising work, managing projects, and reporting data. But spreadsheets as we know it aren’t the best tool for managing projects — more so, your company’s finances — especially in the digital age.
Sure, when a company first starts out or a team is still small, it’s common to devote all the time to work and make do with the equivalent of duct tape on the accounting front. And yes, spreadsheets work reasonably well for small, non-complex projects.
But with larger projects that involve cross-functional teams, multifaceted operations, and a bunch of action items that require high level interaction, collaboration, and coordination, spreadsheets quickly run out of fuel.
Here are 4 hidden drawbacks associated with using spreadsheets to manage company financials.
1. Vulnerability to fraud
Fraudulent manipulations in company spreadsheets can result in big monetary losses.
The major underlying reason behind this vulnerability is the inherent lack of access control, which makes it easy for anyone — including unauthorized users — to alter either values, formulas, or dependencies without being detected or traced.
The cure for this is adopting a Financial Management System (FMS) or Enterprise Resource Planning software (ERP), with a methodology and technology that maximises data security — a system that gives users specific access rights and maintains log files for network observability such as usage patterns and activities.
2. Susceptibility to human errors
In a recent study, experts from the University of Hawaii found that about 88% of spreadsheets contain some form of error.
What this means is that misrepresented values, misaligned rows, or even missed negative signs may not appear sinister on the surface but can in fact lead to giant bottlenecks and inconsistencies.
It may be possible to correct errors when your data is small, but once you start having a stockpile of spreadsheets, detection and correction become a big headache. An accounting system that’s built for today’s business process is what you need.
3. There’s a data disaster waiting to happen
Data that is housed solely within your organisation’s servers can forever be lost if a natural disaster occurs. Also, data that lives exclusively on individual computers can be lost forever if your laptop gets soused in coffee.
As a case in point, report shows that the UK authorities may have lost nearly 16,000 Covid test results at one go. Why? Because of badly thought-out use of a million-row limit Microsoft’s Excel spreadsheet.
4. Painful, time-consuming financial reporting and slow decision making process
Data in spreadsheet-based systems are never kept in a single place; they’re widely distributed. This problem compounds as an organisation grows, pushing for wider distribution of data.
In most cases, employees would have to collect data from different files, summarise them, and laboriously compile all the various versions into one master copy before submitting it to their department heads through emails.
Department heads would then have to take their turn by going through a similar process before submitting the spreadsheets to their superiors. This has to go on until all the information reaches upper management for decision making. Meanwhile, throughout the whole process, data is subjected to numerous error-prone activities such as copy-pasting, manual calculations, and range specification.
This slow data consolidation process makes it painful and time-consuming to prepare meaningful financial reports, and ultimately, to make decisions.
What to Do
Here’s the truth: spreadsheets may be useful for managing small, less complex tasks. But trying to do the same with complex projects — especially finance related projects — will end up costing you plenty in wasted time and resources.
Unlike spreadsheet-based systems, a cloud-based accounting system offers a centralised access to data, analysis, and reporting no matter the size of your organisation. Additionally, it increases accounting and auditing compliance level and can easily be integrated with other business systems such as online banking for automatically recording data and payroll systems for salary and leave entitlements.
Get in touch with us to discuss how we can help you smoothly transition from a spreadsheet-based system to financial management software.