Excel vs. Accounting Software
Let's try to help you make up your mind about this classic dilemma:

Excel or Accounting Software? What is the best way to keep your business records?
Accounting software vs. Excel? What are the benefits and drawbacks for each?
Should you be using excel to manage your business records or a dedicated accounting software?

We hear this question a lot and have personally been down that path, so hopefully we can come up with a few good points.

Start-up businesses, especially micro business and self-employed, usually have some background in using Excel (who doesn't), they have very simple bookkeeping requirements, they don't know much about accounting or bookkeeping and they are trying to keep costs down.

Under these circumstances some business owners may make an uninformed decision.
So before you decide to roll out your own Excel accounting package, make sure you it is the right decision for your business.

Let's first look at the Excel option, the benefits are:
  • It is not expensive - $189 for a standalone ($499 for the entire Office suite)
  • It is familiar; most users know how to do some of the basic tasks:
    • Find and apply a template
    • Create a new workbook
    • Save a workbook
    • Enter data in a worksheet
    • Format numbers
    • Apply cell borders
    • Create an Excel table
    • Apply cell shading
    • Filter your data
    • Sort your data
    • Create a formula (sum, avg, vlookup etc)
    • Chart your data
    • Print a worksheet
  • Templates are available - you can download most simple ones for free, or advanced ones for a modest fee.
  • It is open - you are free to do anything you want with your data, including any formulas or even programming.
  • It is advanced - with excellent understanding of bookkeeping and Excel, you can create almost unlimited reports and graphs
The disadvantages:
  • It's not free and the cost of Excel is comparable to accounting software.
  • Though familiar Excel is not simple and more advanced feature require some proper learning and experience.
  • Templates are sometimes hiding business logic which is not suitable to your business.
  • It is open; you can end up with multiple worksheets, complex formula and a headache trying to figure how things happen.
  • It doesn't offer an audit trail to show how your business records have been changed.
  • It doesn't offer easy conversion of your records to customer facing forms. (Like sending an email, or printing a pay slip)
  • It doesn't provide any functionality which is more than calculating numbers.
    • For example: Invoicing, statement, bank feeds & reconciliation, contacts, payroll, time billing, reports and graphs and more
    • You can probably use excel to create a workable solution for some of these items, but it would take time.
  • Your accountant might not like it (i.e. you will pay more), as it may prove time consuming to understand the records you provide them vs. a standard double entry bookkeeping
  • Data can corrupt through accidental changes/deletion.
It is probably not suitable for the following scenarios:
  • If it's remotely possible that you'll grow,
  • Wish to attract investors or get a loan,
  • Have employees,
  • Pay taxes,
  • Have someone else prepare your taxes,
  • Survive a tax audit,
  • Hire out some of the bookkeeping tasks,
  • Or even simply need to figure out why your books stopped balancing last month.

Now let's look at the alternative, a dedicated accounting software program developed especially for micro businesses.

The benefits:
  • It is familiar; the user interface uses exactly the same Microsoft office controls, which makes for easy learning.
  • Manage payroll and inventory
  • Online bank feeds to automate bank reconciliation
  • Easy to integrate to other data sources (PayPal, shopping carts, Google analytics, Facebook etc)
  • Easy to learn - the basics are "enter sale", "spend money", "receive money" - no formulas or programming required
  • Online/Offline - online backup and sharing with your accountants over the cloud makes for easy collaboration
  • Submit forms to the ATO - BAS, TFN and PAYG summary are mandatory for certain businesses
  • It is open and uses standard relationship database. Which means you can do anything you want with your business data.
The disadvantages:
  • It is not free, but the cost for most options is less than the cost of the standalone Excel program.
  • Entering a single record will probably be more complex than entering a line in excel. But once there it is useful in many ways.

Hopefully we have made it easier for you to make a better decision...
Sometimes what looks like the cheaper or simpler option may turn out to be the opposite in the long run.

Good luck with your new business!