Do I Really Need Accounting Software? Excel vs Accounting Software for Small Businesses

If you’re a small business owner doing your own bookkeeping in Excel, you might be wondering whether it’s worthwhile to start using an accounting software, or if you should stick with the spreadsheets to manage your finances.

The answer (an accountant’s favorite): It depends! In this post, we’ll explore whether a simple spreadsheet is sufficient, or if you would benefit from a dedicated accounting software, like QuickBooks!

Can I really do my own bookkeeping in Excel?

Absolutely! This is a common way for many small business owners to manage their finances, especially when the business is relatively small and operations are simple. A small business with simple operations might have:

• A manageable number of monthly transactions, meaning it would not take you hours to record them all.

• No inventory (or inventory that is very simple and easily trackable).

• Limited payroll to yourself and perhaps a spouse (or it might have a payroll service provider who can give you a monthly report to input).

• A limited number of bank and credit card accounts to track.

An Excel bookkeeping spreadsheet can be used to support your annual tax filings. If you work with an accountant, you can typically give your Excel bookkeeping spreadsheet to them with your year-end materials. 

For more on how bookkeepers and accountants work together, you might enjoy:  What’s the Difference Between a Bookkeeper and an Accountant (and Which Do I Need?)

Excel vs. accounting software: which is best?

If your business operations go beyond the simple picture above, you’re likely best served by a dedicated accounting software. Such software can handle large volumes of transactions, multiple bank and credit card accounts, inventory tracking, and payroll transactions with relative ease.

If you’re in the middle, then whether you’d prefer to use Excel or a dedicated accounting software comes down to your goals. 

Here are some considerations:

1. Cost

Excel is often readily available and much less expensive than accounting software (which is typically subscription-based). This is ideal, particularly if you’re just starting out and want to be cost-conscious. 

2. Control

Using Excel for bookkeeping is a bit like driving a manual car; there’s more to pay attention to while you use it, but there are far fewer things that can go wrong with it. For example, an Excel spreadsheet won’t accidentally auto-categorize an entry to the wrong account, but you do need to watch for input errors.

3. Efficiency

Unless you have a very small number of transactions per month, it’s often more efficient to use an accounting software for monthly data entry, thanks to built-in forms and transaction categories. Some accounting software will even link with your financial institution, eliminating the need to manually enter every transaction.

4. Flexibility

On one hand, with some basic Excel knowledge, you can format your bookkeeping spreadsheet in a way that’s most suitable to you. You can even create new tabs to track certain things (such as personal loan repayments or inventory on hand). It’s simple to update categories and cell formats as well. 

On the other hand, you’re  limited to Excel’s capabilities (and to your knowledge of Excel’s tools). While accounting software has standard layouts and orders of operation to get used to, it does have more power to generate meaningful reports (in addition to recording payroll and other more complex transactions).

5. Reporting 

With some Excel knowledge, you may be able to generate some financial reports for yourself, but this is really the arena that accounting software shines. There are a usually many built-in reports that you can use to keep tabs on your business’s financial performance in real time, and this is often well worth the cost and the learning curve.

6. Room for error

There’s room for error in both, but arguably much more in an Excel spreadsheet. If you accidentally forget a negative sign on a small dollar amount, it can take a long time to manually find the error (unless you build formulaic checks into your spreadsheet). 

Typically, your accounting software will help to ensure every debit has a credit, but there is room for error here, too (although they’re often easier to find and correct).

Is an Excel bookkeeping spreadsheet enough?

Even if you’re running a small business with limited monthly transactions, the time spent creating and using your Excel bookkeeping spreadsheet must feel worthwhile. 

Often it is worthwhile, at least at first — you’ll benefit from sifting through the details and seeing how transactions are recorded and categorized. But if you find it’s taking too much time away from running your business, it might be time to think about switching to accounting software.

When to switch from Excel to accounting software

At some point, your business will grow, your transaction volume will increase, and you may have other needs that can be handled by accounting software, such as:

• Payroll

• Invoicing

• Inventory tracking

• Accounts payable and receivable listings

• More robust financial reports to support business decision-making

This is when you might consider using a dedicated accounting software, such as QuickBooks, which is considered the most trusted online platform for small businesses (and the one we use). 

And if this becomes too demanding to manage on your own as a small business owner, you can partner with a reliable bookkeeper who can manage this for you!

Rather someone manage the books for you?

We don’t blame you! Bookkeeping is a skill, and a time-consuming one at that. If you’d rather move right from Excel to working with a professional bookkeeper, we would be happy to speak with you. 

A bookkeeper brings their expertise to the accounting software, streamlining your financial systems and helping to support you in growing your business. Click here to schedule a free consultation with us — we look forward to hearing about your business.

For more small business bookkeeping tips, read this next: Your Guide to Stress-Free Bookkeeping: Streamlining Your Systems and Avoiding Common Mistakes