6 Excel Spreadsheet Cash Flow Nightmares To Avoid
Posted on 24th October 2017 in Advisory
Written by Emily Simmons
Though versatile and user-friendly, spreadsheets are prone to human errors to limitations, so aren’t always the best piece of kit to run your business on. Freelance writer Emily Simmons has had an entrepreneurial spirit since she was young, and several years and ventures – both successful and for further development – later, is keen on sharing what she has learned about starting and growing a business and everything in between. Here’s her round up of the top six spreadsheet issues to watch out for…
Since its release in 1985, Microsoft Excel has become a widely used tool in workplaces around the world. Many business leaders and entrepreneurs use Excel spreadsheets for tracking sales trends, analysing business data, and performing other finance-related activities involved in running a business or organisation.
Excel is relatively cheap and widely available, making it a useful tool for various purposes including outlining budgets, financial results, and business plans.
While Excel has become an integral part of most business organisations for its diverse functions and applications, it has a number of limitations that make it difficult to use for critical business processes. Luckily, more advanced tools are now available for every business owner to keep track of payment dates and perform effective payroll management.
Here are six cash flow problems that will help you reconsider always reaching for the spreadsheets:
1. Struggling with completing statistical calculations
Excel is a convenient tool for data entry and for doing a variety of calculations. As a result, you may turn to it as the obvious choice in doing statistical analysis for your business. Although there are some very useful statistical functions in Excel, such as the Data Analysis ToolPak, it may prove to be a poor choice for statistical analysis because of the challenge in data arrangement, among other things.
The options for data organisation in Excel are rather limited and can become problematic as the data grows. As you add new rows and columns, the spreadsheets become more difficult to manage because you need to change specific summary ranges and formulas to avoid outdated data and formulas.
Worse, if you have to do several different analyses, you might be forced to rearrange your data in many different ways to find a single arrangement that will work.
When dealing with statistical calculations using Excel, missing values can also be handled incorrectly and deter you from maximising productivity in your business. Because missing values in Excel are identified by blank cells, you will need to manually modify any missing value codes to blanks. So if you need to perform analysis of variance, it is best to avoid using Excel, as it presents a challenge to error-free analysis.
2. Lack of integration
It is still very common for entrepreneurs to manage their growing business using Excel rather than investing in inventory management solutions. One of the biggest challenges facing businesses that use this approach is the inherent lack of integration between Excel and other systems within a business.
When an expense management tool is not integrated with a business’ project management or CRM process, cash flow analysis becomes an isolated process that will likely fail to provide true business intelligence. And without accurate business intelligence, it becomes exponentially more difficult to identify and monitor business trends that are essential to adapting to a changing business environment.
This is an area where businesses can reap the benefits of switching from spreadsheets to cash flow management tools. With Excel spreadsheets, inputting of financial data might be simple, but it will require a significant amount of manual effort to analyse data. In contrast, an automated cash flow management system will allow you to manage and track your cash flow more effectively.
3. Susceptible to human errors
Given the flexibility and easy accessibility of spreadsheets, the threat of fraud is ever present. But there is a more serious threat that you need to watch out for as a business owner: trivial human errors.
Using Excel to monitor your cash flow entails you to manually enter key data into spreadsheets, which increases the risk of a manual error. You may say that entering data into spreadsheets is a fairly simple task, but once “simple mistakes” like negative signs and misaligned rows start to cause negative effects on your financial data analysis, that’s when you’ll understand that it’s about time to invest in better alternatives.
Imagine having an accountant enter a wrong sale amount into a spreadsheet, which will result in an understated or overstated accounts receivable and eventually affect your cash flow statement.
4. No cash flow prediction
Cash flow forecasting is an important part of any business as it allows you to identify potential shortfalls in cash balances, which can directly impact the financial security of your business. Gaining insights into all your business’ cash flow drivers, consolidating all the key data, and applying the right logics are crucial parts of running your business.
Cash flow forecasting is often associated with a lot of manual work on spreadsheets, but you may want to move away from this approach as it does not provide the required flexibility for calculating business financial forecasts.
In order to accurately predict cash flow, you will need an accounting system that has predictive capabilities. The fact is that the more your business grows, the more difficult it becomes to set budgets and predict cash flow. In addition, roughly 80% of businesses fail because of poor cash flow management, making it more important to invest in automated accounting technology.
5. Difficult consolidation process
Financial consolidation can be a long and tedious process for any business. It has long been a challenge for companies to create accurately consolidated numbers that will help them make decisions based on updated financial management information. And because approximately 70% of businesses use spreadsheets for this process, many end up having contradictory spreadsheets that cause inconsistencies in financial process management.
If you handle many employees working on the same spreadsheet, it can be difficult to handle shift changes, and you might just end up calling 20 different people just to find someone who can fill in when someone is absent. This is not only time-consuming but counterproductive as well.
A spreadsheet may seem like a fairly straightforward tool for accounting and keeping accurate data, but if you only have two or three people in your organisation who completely understand how the tool works for complex cash flow management processes (while others with access can only contribute ‘what-if’ analyses), then you run the risk of having an Excel file that does not function exactly as it should.
6. Issues in version control
An efficient cash flow management process relies on accuracy of data. But this can be difficult to achieve when multiple copies of the same Excel spreadsheet are created by people with access to the file. When using spreadsheets, people in your organisation can easily generate copies of the same workbook when a spreadsheet file has been corrupted and a new copy has to be created.