It’s time to talk about spreadsheets. Or, as one financial modeling company called them, capitalism’s dirty secret. What’s going on between the (spread)sheets to earn the decades-old business application such a sordid reputation? Mistakes. Costly ones. Almost nine in 10 spreadsheets (88%*) contain errors. Yet what do most businesses base their decision making on? Spreadsheets.
- 8 in 10 key financial decisions (78%*) are supported by spreadsheets
- 1 in 2 businesses (56%*) use spreadsheets to prepare accounts
- 1 in 5 (22%*) private sector investment decisions are based on spreadsheet analysis
Decisions based on flawed information are flawed. One in three small and medium businesses* say spreadsheets have caused poor decision-making.
Just because spreadsheets are widely used, doesn’t mean they are used well. Errors can occur in data input, formatting, calculations or formulae. Because they are typically updated manually, error checking is tricky. The bigger they grow, the more unwieldy they become – you can have more than one million rows in an Excel spreadsheet. If there is no version control, change tracking or double-checking processes, errors and discrepancies abound. Then there’s the inordinate time spent maintaining and reconciling.
The spreadsheet universe is littered with tales of woe from basic spreadsheet mistakes that cost time, money, jobs and reputations.
At the London 2012 Olympics, organisers sold 20,000 tickets to a synchronised swimming event with only 10,000 tickets available when someone put ‘2’ instead of ‘1’ in the spreadsheet.
On the eve of a Northern Territory election, the Country Liberal Party admitted a spreadsheet error had thrown its costings out by $30 million**.
JP Morgan was forced to declare $6 billion in losses when it seriously underestimated the downside of a credit portfolio thanks to a copy-paste mistake and faulty equation created to crunch the numbers in the spreadsheet used to model risk.
No wonder Warren Buffett famously said ‘Beware of geeks bearing formulas’.
Despite advances in the availability of cloud-based online accounting software, many businesses continue to use spreadsheets at their own peril.
As technology evolves, there is clearly a better way. Online cloud accounting systems deliver a faster, more productive way to work, with in-built controls, checks and balances.
They are easy to use and simplify complex tasks, saving time and driving productivity. They are more controllable, accurate and less prone to human error. Data doesn’t have to be copied and pasted and results don’t have to be double-checked. The ability to keep track of all changes means there isn’t multiple versions of what Trump might call ‘alternative calculations’ flying around.
Online accounting software provides greater visibility into the financial status of the business in real time in an easy to understand, visual, flexible and searchable format. It enables greater collaboration with the ability to view data from any device, anywhere, anytime, for faster more efficient and effective decision-making.
A consistent, single view of the business can be easily shared with accountants, bookkeepers and auditors. It is robust enough to satisfy regulators, auditors and tax and compliance requirements. Improved data quality, validity and audit trails reduce business risk.
When financial mismanagement and poor record-keeping are behind one in three small business failures*** in Australia, business owners who want to not just thrive, but survive should head to the cloud – and consign the spreadsheet to the annals of history.
About the author
Dan Rabie is currently Chief Operating Officer at Reckon, a position he has held since 2015. In his role, he leads the strategic direction of the company’s IT, development, marketing and HR shared service divisions across four countries; producing innovative online accounting, fintech and document management solutions to hundreds of thousands of customers around the world.
* Capitalism’s Dirty Secret, research report, F1F9
*** ‘Start Me Up’, John Petty, University of Technology, Sydney, 2005, https://www.uts.edu.au/sites/default/files/Start_me_up.pdf