Small business record keeping: Is my spreadsheet good enough?

Kirsty Young Advice and Tips

As a business owner, you’ve no doubt seen your operating costs rise and rise. Adding more cost in terms of financial software is not going to be top of your shopping list.

It’s not just the cost of the software subscription either. It’s the time investment to learn, set up and use a system that can make you think twice. Plus, there are a multitude of offerings from tech companies at looking to solve your problems. Just deciding what to invest in can be a challenge.

So, it’s not a surprise that small business owners are looking for the easiest, cheapest, hassle-free way to keep their business records. Many of them will start with an Excel or Google spreadsheet. And that’s fine – for a while.

This blog is all about highlighting when it would be good to swap, and what benefits it could bring you to do so.

 

When your spreadsheet won’t be good enough

There are two main situations where (in our opinion) holding vital business financial information just in a spreadsheet will be detrimental to your business:

1. If you are a limited company.

If you are a limited company and still operating in a spreadsheet, our advice would be – get out of this as soon as possible.

Cue the usual caveat that we are talking in general terms here. We know there are some amazing sheets that will do some of what we describe below, but they are few and far between, and are usually custom made by the owner.

So we strongly advise you to move to a cloud-based accounting system asap.

There is one mega reason for saying ‘move to the cloud’: a spreadsheet usually isn’t set up as what is known as a ‘double entry’ accounting system, and that has consequences.

What is double entry accounting?

In double entry bookkeeping, everything you enter has two sides to it. That means on a spreadsheet you have to make two entries manually (unless you’re an Excel whizz and understand functions).

Accounting software does this automatically. For example, if you categorise a transaction shown in your bank to ‘Travel’, the software will actually record a reduction in balance in your bank account and create an entry in the accounts for that travel cost.

One transaction, two entries. See?

The practical benefit of this is that you can generate the two key reports for your business (and many others) at a click of a button. It also means your accounts should be ‘balanced’.

Double entry accounting for limited companies

Double entry accounting and easy access to reports is VITAL for your limited company accounts. Much of your tax bill revolves around your profits, and how and what you are taking from the company. Understanding your company’s ‘financial position’ is essential and you can view a snapshot of this via the ‘Balance Sheet’ report.

If you want to pay yourself regular dividends, it’s unlikely you could know if this is legally possible without these reports.

Balancing the books: key reports you will need to see

Using cloud-based apps should ensure that you can easily view two key reports, that you know are correct (or will be if the book-keeping is right!). This is because your bank account/s will be ‘reconciled’. This means that you can see at a glance:

    • A list of who owes you what (your ‘Accounts Receivable’ report)
    • A list of who you owe money to (your ‘Accounts Payable’ report)

Why are reconciled accounts important?

Your double entry system creates two entries for everything, including payments out and money coming in. You need to match incoming payments in your bank account/s to something that triggered the payment, such as an invoice.

For example, when you allocate a payment you see in your bank to an invoice, you are creating both an increase in bank balance AND a reduction in amounts due from that customer. This creates a clear link (audit trail) that means you can ‘prove’ the balance owed at any point. (Again, this is presuming that your book-keeping is correct!).

In a standard non-double entry spreadsheet (how most people usually keep them) this is usually a simple list of payments and receipts. It is prone to errors as it’s not fully reconciled with the monies flowing in and out of your bank accounts.

 

2. Being VAT registered

The second situation where it will feel semi-mandatory to ditch the basic spreadsheet and upgrade to a cloud-based app is if you go VAT registered.

You will need ‘Making Tax Digital’ enabled software anyway to submit your VAT returns. Yes, you can get spreadsheet plug-ins to do this, but you will get a much better, more accurate result by using an accounting app like Xero or QuickBooks (again due to this double entry approach).

You might well be able to enter every receipt and invoice and the VAT amounts claimable, but you also need to account for this in your figures used to produce the accounts and tax return. Again this is usually not handled well in common spreadsheet formats.

 

3. And another reason (or two)

Cloud software is an amazing collaboration tool.

  • You can share it with your accountant
  • You all understand how it works
  • You view the same ‘live’ version at all times

That saves endless emailing of various versions of spreadsheets and sorting out the resulting confusion!

A cloud-based system will also keep your data securely backed up at all times, and your accounts can be accessed anytime, anywhere with an internet connection via a secure log-in. In contrast, a single unadvised Sort by a colleague (and not remedied) can wreck the best spreadsheet in milliseconds and you may not spot it until you’ve just overwritten the backup version….

 

When your spreadsheet would normally be ok (but you still will want to think about it)

First the good news. If you are a sole trader/self-employed person that isn’t VAT registered, a spreadsheet can still work. Just be sure to keep as many columns as you need to detail what the expense categories are (avoid ‘MISC’ or ‘Sundry’!).

Now the bad news. There are current plans under the ‘Making Tax Digital’ proposals for many sole traders to have to submit digital returns in 2026. The date’s been pushed back twice already, so it’s worth thinking about a cloud move sooner rather than later.

There are still the benefits of being in the cloud in general to consider, aside from Making Tax Digital.

 

Other benefits ‘cloud accounting’ brings to your business

While there are many benefits to cloud accounting, there are three which small business owners regularly tell us were super-useful:

– AI tools

Many solutions have a built-in ‘AI’ tool that will help speed up the book-keeping process.

– An easy and quick way to invoice

Getting paid quickly is obviously super important in the small business world. Invoicing promptly is key to this. You can read more about how to get paid quickly in our blog on the subject.

– Reports on demand for lenders, etc

If you are looking for lending, or supplier credit accounts, often you will need reports and figures. Having these at your fingertips is very useful (presuming your book-keeping is up to date and solid!)

 

Still not convinced?

You can read more about why switching to cloud is a good idea in our blog on 7 Reasons to consider switching to cloud accounting software.

 

I’m still confused about cloud-based accounting apps

Ask your accountant or book a consultation with us to help you make the most of the opportunity to go online with your accounting. If you don’t have an accountant, or feel that getting your accounting in the cloud would is a job too far for you to achieve on your own, we’d love a chat about how we can help.