Moving on from Excel: Understanding and addressing the costs of spreadsheet mistakes

Moving on from Excel: Understanding and addressing the costs of spreadsheet mistakes

Published: 7/14/2015 7:55:02 PM

How has the spreadsheet managed to remain a staple of business accounting for so long? For context, it is older even than the once ubiquitous 3.5-inch floppy disk, having broken into the mainstream with the release of VisiCalc for the Apple II in 1979. Yet rather than fade away like other technologies of yesteryear, from the floppy to the cathode ray tube monitor, it has proven to be as surprisingly venerable as the Ethernet cable and the desktop solitaire program. Spreadsheets, especially ones created in Microsoft Excel, are still very much a fact of life for accountants who spend their days reconciling ledgers on their PCs and Macs.

None of this is to say that spreadsheets lack utility, of course. They excel - no pun intended - at everything from organizing a personal budget to quickly retrieving values using advanced features such as Excel's Index/Match. Their distinctive combination of familiarity, elegance and power has made them synonymous with financial management, a relationship that could be viewed with equal degrees of agreement (i.e., spreadsheets work and are easy to use) or anxiety (how did they become so essential to the economy?), depending on your perspective.

Indeed, Walter Hickey of Business Insider once argued that Excel in particular is a tool by which modern businesses live and die. He has a point. But rather than focus on the continual refinement of database lookup skills in Excel, organizations should look to reduce their reliance on this high risk/high reward application and the rest of its ilk. Safer, more comprehensive options such as cloud financial software offer a better way forward.

Understanding the cost of spreadsheet errors
As a format, the spreadsheet presents a lot of room for error. For example, a formula may be transcribed incorrectly, resulting in garbled output. Improper formatting can also complicate how information is processed and ultimately interpreted. Perhaps worst of all, data errors can throw a wrench into an SMB's entire accounting department and disrupt its regular budgeting and forecasting operations, too.

How wide-reaching can these mistakes be? Last year, a simple data entry error by Goldman Sachs concerning the total share count of Tibco Software drastically lowered the latter company's sale price, according to The Wall Street Journal. Its buyers basically got a $100 million discount on the deal - all because of one mishap with a spreadsheet.

"The spreadsheet presents a lot of room for error."

These sorts of dramatic, high-stakes incidents are the exception rather than the rule, yet they underscore the fragility of the spreadsheet and the need to find a suitable alternative. With that in mind, let's examine the challenges that SMBs and enterprises face in moving past Excel and what they can gain by switching to something else.

Why do spreadsheets not scale?
Rapidly growing businesses often have to complete overwhelming amounts of work with very limited staff. Accordingly, employees may have to wear many different hats, as they do everything from set up new sales relationships to handle incoming customer support tickets. It is easy for important tasks - including accounting - to get lost in this shuffle. Spreadsheets, with their manual data input and proneness to error, are not ideal for these circumstances:

  • Mistakes happen all the time. A study from Ventana Research, sponsored by Intacct, found that 35 percent of surveyed companies had data errors in their most important spreadsheets. Twenty-six percent had formula errors, and 19 percent reported format issues. Any incorrect cell can easily be a seed for trouble down the road.
  • Spreadsheet software was not designed from the ground up for automation. Sure, there are advanced techniques that experienced quants can use to turn a program like Excel into a well-oiled machine, but the risk of error as well as the time needed to acquire this knowledge constitute huge opportunity costs for SMBs.
  • Accounting departments ideally have a high degree of oversight and control over their data. To this end, audit trails and change tracking are essential. However, spreadsheet programs do not offer this specific functionality out of the box, unlike purpose-built business accounting software.
  • Long term maintenance is a drag. The Ventana report found that in more than 18 percent of companies, employees spent more than a day each month simply keeping their spreadsheets up to date.

It is a common situation for growing SMBs, realizing these shortcomings, to outgrow Excel, in addition to other relatively limited tools such as QuickBooks. The automation and scalability of software-as-a-service solutions are naturally much more amenable to rapid business expansion. A company that is adding many customers each day and introducing new forms of revenue recognition is better served by an easy-to-manage cloud platform.

What can SMBs expect once they "graduate" from Excel?
After years of using a spreadsheet for revenue recognition and painstakingly synchronizing it with the company's enterprise resource planning implementation, it can seem like there is no other option. Fortunately, there is.

Manual data input.Spreadsheets involve a lot of time-consuming manual maintenance.

Cloud accounting software includes comprehensive functionality that helps keep the system of record well maintained, without the slog of manual updating. Plus, it is delivered over the Internet to virtually any IP-enabled device, allowing for low-cost and convenient access.

The upshot of using cloud-based tools instead of Excel and QuickBooks is an enhanced ability to close reports, as well as a more streamlined overall accounting workflow. There is plenty of room for improvement here, given that 75 percent of Ventana's midsize respondents still use spreadsheets during their monthly and quarterly closes.

"Analyzing and allocating expenses can be time-consuming, especially if they involve creating multiple sets of pivot tables to provide full insight into all expense types – for example, tracking expenses by client, by project, by type, by time period and whether it is billed or unbilled," explained the report's preparers.

Relying on spreadsheets can slow down time and expense tracking in this way, so why settle for them? The more granular capabilities of a cloud solution help you stay on top of all of your company finances, ensure compliance and and ultimately improve customer satisfaction. Don't wait to move on from Excel - find something that will grow alongside your business and evolve to meet your needs.

Copyright ©2015 Arxis Cloud. All rights reserved.