Spreadsheets vs. SaaS accounting software
When you start making your first purchases for your startup, it’s easy to record them in an Excel or a Google Docs spreadsheet. You may be a spreadsheet whiz, or you you may have downloaded some free accounting templates on a website that helps people launch businesses.
Excel spreadsheets may pass muster for the first weeks, or even months, as you’re getting your business off the ground, but continuing to manage your books that way — and not using real SaaS accounting software for your startup — is simply the wrong thing to do. This is true especially when you seek investments or venture capital to grow your business; when you show potential backers your financials in a handful of spreadsheets, chances of errors are higher and it looks unprofessional.
There are certainly people who could maintain their financials for their SaaS startup in this manner. In these cases, they’d have to create very detailed spreadsheets with all the accounts and reporting elements of standard accounting. Spreadsheets like this would look a lot like accounting software, and the amount of time they’d take to set up — and verify — would be better spent on growing their business.
The disadvantages of using Excel for accounting for your SaaS startup is about a lot more than just the way figures look in a spreadsheet. There is so much that can be wrong in a spreadsheet that investors can’t take that sort of financial data seriously.
What’s wrong with using Excel as SaaS accounting software?
Excel is a great tool. It’s fairly easy to use — if you have a head for numbers — and you can move data around, showing and hiding different elements of your business you want to analyze. While you may understand how you’ve set up your spreadsheet, others simply can’t trust it. There’s no way of knowing if your formulae are correct; not just their basic math, but also their adherence to generally accepted accounting principles (GAAP).
It’s easy to make a mistake when entering data, and these mistakes can have a domino effect as they cascade through the different cells in your spreadsheet. (A few years ago, JP Morgan Chase lost $2 billion, because of this.) One study has shown that 88 percent of spreadsheets contain errors; can you really run your business like this?
With a spreadsheet, you have to verify the coherence of each cell, each formula, and verify how they all contribute to your final tallies. And this isn’t easy; you’ll end up spending more time checking things than you will in growing your business, seeking new clients, or new investors.
What SaaS accounting software offers that Excel doesn’t
SaaS accounting software offers so much more than Excel that it’s really a no-brainer. Here are some of the best features that most accounting software provides:
Contact and project management: Set up your contacts, create projects, and manage your clients, all without having to copy and paste rows and columns.
Time tracking: If you bill your clients by the hour, most accounting software includes the capability to do this automatically. Create time sheets, then add them up when it’s time to issue invoices.
Invoicing: This is one of the most practical features of accounting software. You can easily invoice your clients, according to what you’ve sold them, how much time you’ve spent on their projects, and more. You can also create estimates, which you can then convert to invoices with a few clicks.
Price database: Depending on what your business sells — services, hardware, etc. — you can have a price database and update it as needed. You’ll always be charging your clients the correct prices. And you won’t need multiple calculations for sales tax; the software will handle that too.
Expenses: Accounting software handles expenses very well. Each team member has a role in the accounting software, and you can see, at any time, how much has been spent, and reimburse people accordingly.
Apply purchases and expenses to the appropriate accounts: Some of your expenses are for payroll, others for office equipment, and others for capital assets. Try separating those correctly in an Excel spreadsheet, especially when you need to calculate depreciation. Accounting software does this for you and helps ensure best practices are followed in recording expenses.
Payroll and benefits: Handle payroll, payroll takes, reporting, and all the related expenses without breaking a sweat.
Bank feeds and reconciliation: You can download your banking transactions in a file that you can import into Excel; if you can figure out how to align everything. With accounting software, you can have your bank transactions update automatically, and apply their expenditures to the correct accounts with a few clicks. Accounting software handles multiple bank accounts easily, and some software handles multiple currencies, so you don’t even have to look up exchange rates.
Cash flow projections: You can do this with Excel, with complicated formulae, but accounting software lets you see the big picture at any time.
Sharing: You may have a number of principals in your startup who need access to your accounts. With an Excel spreadsheet, you won’t all have access at the same time. Plus, you’ll never know if anyone has made a mistake. With accounting software, your accountant or CFO can check your books easily, and you can even give potential investors limited access to view your accounts.
Pretty printouts: Whenever you are seeking investments, you’ll need to show how healthy your business is. Accounting software prints out easy to read, standardized reports: your trial balance, profit & loss account, balance sheet, and more. You’ll look a lot more serious with accounts that investors can understand at a glance.
Audit trail: No one wants to get audited, but if you ever do face the scrutiny of the IRS, accounting software makes the process a lot simpler.
Support: When that person who set up the Excel spreadsheet leaves your startup for a different gig, who will be able to help out when something goes wrong? Accounting software includes support so when you don’t understand something, an answer is just a phone call away.
The key to producing sound startup financials
With all the above elements that SaaS accounting software does better than Excel, there’s one that’s even more important: accuracy. One of the reasons Lighter Capital says no to borrowers, for instance, is because they can’t produce accurate financials. If you’re planning to raise any type of capital for your business, whether Angel, VC or debt-based, it’s important to get your financials in order.
The key to producing sound financials is to have an accounting package/software. It takes the manual effort out of it and minimizes chances of errors.
Having your financials in good order and presenting a complete, coherent financial picture is one of the best ways to demonstrate that you’re ready for funding. When a lender sees that a borrower uses QuickBooks, getting a loan and servicing the loans with us will be much easier.
At Lighter Capital, our application is fully integrated with QuickBooks Online and Desktop versions, and we’re a certified Intuit Developer Partner. This means you can submit your financials in just a few clicks, which speeds along the application and funding process. See how our revenue-based financing works and apply today.