Are you still using spreadsheets to run your small business in 2022? 

Did you know that these spreadsheets could be holding you back (in more ways than one)?

Although you may be used to using spreadsheets to manage your small business’s accounts, this isn’t the most effective way to stay on top of your finances. In fact, using spreadsheets could even lead to accounting errors and issues with data privacy.

If you want to avoid these problems and take advantage of a whole host of amazing accounting features, you need to ditch the spreadsheets and invest in cloud-based accounting software. Still not convinced? Here are the main reasons why you should make the switch.

1) Complying With Making Tax Digital Rules 

Since 2019, the UK government has been rolling out its Making Tax Digital (MTD) initiative, which aims to make the UK tax system simpler and more efficient through digitisation. To learn more about this initiative, you can read this helpful guide to making tax digital here. 

Making Tax Digital for VAT was introduced in 2019 for all VAT-registered businesses with an annual turnover of above £85,000, and it was extended in 2022 to all other VAT-registered businesses. In 2024, MTD for Income Tax will be introduced for all self-employed business owners and landlords earning over £10,000 per year.

If you’re a self-employed business owner, then you’ll need to get ready for MTD for Income Tax, which means you need to start keeping digital records and submitting tax information to HMRC electronically. However, if you’re still using spreadsheets to track your income and expenses, this process could be rather difficult.

To comply with MTD requirements, you could use bridging software to transfer the data on your spreadsheet to HMRC, but this could still be more trouble than it’s worth. Instead, if you invest in MTD-compliant accounting software, you can easily keep digital records and submit your tax returns to HMRC well before the deadline. Ultimately, having an all-in-one software solution will make submitting your tax returns digitally much less complicated.

2) Extra Features

Another major benefit of accounting software is that it includes a wide range of accounting features, making it much more efficient than using spreadsheets.

For example, popular accounting software packages include fantastic features such as invoice creation, billing, bank reconciliation, reporting, payroll and more. These features can make all of your accounting tasks so much more efficient and accurate, freeing up extra time for you to focus on other areas of your business.

On the other hand, your spreadsheets can’t deliver any of these additional features. Spreadsheets will only record your income and expenses, so if you want detailed financial reports or new invoices, you’ll have to work on these tasks separately, which can be very time-consuming.

3) Data Privacy

As a small business owner, you need to ensure that your financial data is always secure. If an unauthorised person gets access to your financial information, this could spell disaster for your business.

Luckily, cloud-based accounting software is extremely secure. This software uses encryption when storing and sending your data, ensuring that it’s protected against cyber attacks. Reputable software companies also perform regular security audits and have strict anti-malware measures in place, so you can rest assured that your data is as safe as possible.

4) Data Loss

Since spreadsheets are stored on your PC rather than in the cloud, you could be vulnerable to data loss if you don’t regularly back up your financial data. Even the most diligent business owners could sometimes forget to back up their files, but there only needs to be one mistake for your spreadsheets to be lost. If this happens to you before an important tax deadline, then you could be under a lot of pressure to quickly recover your financial information so you can file your tax return in time.

5) Spreadsheet Errors

Unlike accounting software, a spreadsheet will just perform one task, such as tracking your income and expenses. Unfortunately, spreadsheets can’t even perform this task very well at all.

This is because spreadsheets are notoriously prone to errors, including copy-and-paste errors, typos, input errors and mistakes in spreadsheet logic. In some cases, these errors can be catastrophic – in 2012, JP Morgan famously lost $6 billion due to a spreadsheet error. 

As a small business owner, your spreadsheets won’t cause you to lose such a large sum of money, but they can still create major accounting errors that damage your finances and take a long time to rectify. Double-checking your spreadsheets regularly can be helpful, but you won’t be able to completely eliminate the risk of errors.

6) Lack of Automation

In addition to being error-prone, spreadsheets take a long time to create and maintain. This is partly because spreadsheets are unable to automate certain processes, so you’re stuck with manual data entry when managing your accounts.

On the other hand, accounting software allows you to automate so many time-consuming tasks. For example, many software packages can now automatically store financial information when you take a photo of a receipt, and they can also automatically convert quotes or estimates into invoices and send them to your customers. With these amazing software solutions, you can say goodbye to boring data entry.

 7) Lack of Support

As we’ve established, spreadsheets can be difficult to maintain, time-consuming and full of errors. However, what’s even worse is that you won’t be able to access any support if you encounter these problems. So, if your spreadsheet suddenly stops working or it wipes out important information, you’ll have to figure out a solution all by yourself. Doesn’t that sound stressful?

With accounting software, you won’t have to struggle on your own. Many software providers guarantee round-the-clock support for users experiencing problems with their software. For smaller problems, you can watch how-to videos that walk you through certain features, and if you have a more complex problem, you can contact their support team for personalised advice.

Using Accounting Software

Ultimately, using spreadsheets is an extremely outdated way to handle your small business’s accounts. Spreadsheets are error-prone, time-consuming, unreliable and one-dimensional, and worst of all, they won’t help you become MTD-compliant before MTD for Income Tax is introduced in 2024.

Instead, you need an all-in-one software solution to handle your accounting and submit your tax returns. Although there’s an initial investment, getting accounting software for your small business is definitely worth it.