Excel bookkeeping: When should startups use it?

If you’re thinking about using Excel for your company bookkeeping, there are a few things to know. While Excel is useful for some specific bookkeeping tasks, we strongly recommend against building an entire bookkeeping system in Excel: It won’t provide your business with a good foundation to scale, and you’ll likely find that this method causes more problems than it solves. 

Read on to learn how Excel bookkeeping measures up against accounting software and which tasks it does make sense to manage with spreadsheets. 

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Why a complete excel bookkeeping system isn’t the right choice

When you’re just starting a business, using Excel spreadsheets to build your bookkeeping system can seem appealing. Because most Microsoft Office packages include Microsoft Excel as standard, and Google Sheets are free to any person with a Google account, it likely won’t cost your business any extra money—and you won’t need to commit to an additional contract. Plus, spreadsheets are common tools with which most people already have some experience, so you won’t need to spend much time learning how to use them for bookkeeping.

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If your startup is in the very earliest stages and only needs to handle a few cash transactions, Excel can be a useful stop-gap while you’re choosing and setting up specialized accounting software like QuickBooks. 

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However, Excel bookkeeping can limit the growth of your business in four key ways, so we recommend implementing business accounting software as soon as possible.

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1. Creating an Excel bookkeeping system is time-consuming.

A number of records, reports, and organizational methods are essential to a startup bookkeeping system, including:

• Chart of accounts

• General journal

• General ledger

• Income statement, or Profit and Loss statement (P&L)

• Balance sheet

• Cash flow statement

• Accounts receivable, including sales invoice tracking 

• Accounts payable

• Budgets

• Reconciliations

• Inventory tracking

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If you manage your bookkeeping with spreadsheets, you have to build each of these manually. Even with Google Sheets and Excel templates available to download, you still need to customize your bookkeeping spreadsheets; there is no one-size-fits-all Excel bookkeeping template for every startup or small business. Creating all the necessary records and setting the right formulas is a significant time investment. 

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2. Managing an Excel bookkeeping system takes a lot of manual work.

Although you won’t need to spend time learning a new system, Excel bookkeeping actually creates more work for you or your bookkeeper on a day-to-day basis. Formulas can automatically calculate some values, but you will still need to manually enter most data into the Excel sheets. 

For growing businesses that are processing increasing numbers of transactions, this can quickly mean spending several hours each week on data entry alone. Manual work is much more error-prone than automated processes, so you will also need to factor in time to review your bookkeeping and fix errors, such as data entry errors or missing records. In comparison, accounting software can automate many bookkeeping processes, allowing you to spend less time (and money!) on manual tasks and keep more accurate records.

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3. Performing double-entry accounting is extremely difficult in an Excel bookkeeping system.

There are two main approaches to keeping financial records: single-entry and double-entry. 

• Single-entry accounting (or, single-entry bookkeeping) only records each transaction once, with income transactions recorded as a positive amount and expense transactions recorded as a negative amount. 

• Double-entry accounting (or, double-entry bookkeeping) records each transaction twice, as both a credit and a debit. For example, in double-entry accounting, if you pay a vendor $100, you would record it as a $100 debit to the liability you owe the vendor and a $100 credit to the business’s cash. 

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Most businesses should use a double-entry system: Unlike single-entry accounting, double-entry records give sufficiently detailed information to build key financial statements. However, this level of detail is very difficult to maintain with a simple spreadsheet. For each transaction, you would need to manually enter the data twice, greatly increasing both the completion time and the opportunity for human error. 

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4. Switching from Excel bookkeeping to accounting software is a hassle.

If you start using an Excel bookkeeping system and later switch to accounting or bookkeeping software as your business grows, you will need to make two key decisions: 

• Do you want to transfer historical records and data into the business accounting software or only include new business transactions going forward? 

• What level of historical data detail do you want to move to the new software? You can choose to transfer summary-level data—such as the cash amount at the end of each month—or transfer all the data for each transaction. 

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In an ideal world, it’s preferable to transfer complete accounting records from the company bookkeeping Excel sheets to accounting software. Having detailed historical data allows you to run comparative reports against previous periods—for example, comparing the revenue generated in Q1 of 2021 with Q1 of 2020. However, this process can be very time-consuming and resource intensive based on the amount of data to transfer, so first conduct a cost-benefit analysis to assess if it’s worthwhile for your business. To avoid either a fragmented financial record or a lengthy transfer process, we recommend managing your bookkeeping in accounting software as early as possible.

3 Bookkeeping Tasks When Using Excel Does Make Sense

While building a complete Excel bookkeeping system isn’t a long-term solution, Excel spreadsheets are helpful for three individual bookkeeping tasks.

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1. Revenue recognition schedules 

If your business uses accrual accounting (which you should!), you will need to build revenue recognition schedules to map out when you can recognize portions of customer income as revenue. Excel spreadsheets are a useful tool for creating revenue recognition schedules that are quick to update. To build a basic revenue recognition spreadsheet, create columns for each month of the year and rows for each customer from whom you have deferred revenue. You can then record the portion of revenue you will earn each month from each customer.

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Read more: How To Manage SaaS Revenue Recognition For Your Startup

2. Account reconciliation

To help with bank and credit card account reconciliation, you can use an Excel spreadsheet to show the money entering and leaving each account. This is particularly useful for revealing transactions that are in transit. For example, when a customer makes a cash payment or check, you immediately record the payment in your accounting software. However, while the money is in transit to the bank and hasn’t yet arrived in your account, the cash amount recorded in your accounting software will not match the amount in your bank account. To identify and explain any discrepancies, export bank statements and credit card statements from your online banking system into an Excel spreadsheet for comparison with your accounting software.

3. Financial planning and modeling

While several specialist financial modeling software options are available (for example, Quantrix), most startups use Excel to predict and plan their financial future. Using your actual financial data and information on general industry performance, build a forecast of the startup’s income and business expenses for defined future periods. You can create multiple spreadsheets to model how the business would perform under different conditions and use this data to build projected versions of the key finance statements.

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Read more: What Every Founder Should Know About Building A Startup Financial Model 

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Zeni: The stress-free way to start using accounting software

Is the process of navigating the complexity of new accounting software deterring you from taking the leap? Or are you uncertain which accounting software your business needs? Zeni’s team of finance experts is here to make starting with accounting software a breeze. 

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Zeni is an AI powered bookkeeping and accounting platform that has the ability to close your books daily, access real-time insights, and get personalized support from experts — all on a single platform. Our solution is designed with startups in mind, including pricing plans tailored to suit your budget. Plus, if you have questions about accounting processes or financial management, we’re on hand to help with a 24/7 financial concierge to answer any questions. 

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