Should I Use Cloud Accounting or Spreadsheets

What is cloud accounting

Cloud accounting refers to using online accounting software to manage your business finances. Instead of storing data on your computer, information is securely hosted on remote servers and accessed through the internet.

Popular examples include Xero, QuickBooks, Sage, and FreeAgent.

Cloud systems automatically update, back up your data, and allow accountants and business owners to access the same information in real time.

What are spreadsheets used for

Spreadsheets such as Microsoft Excel or Google Sheets allow users to manually record, organise, and calculate financial information. They are flexible and familiar to many business owners, making them a popular starting point for new or very small businesses.

However, spreadsheets require manual data entry and updating, which can be time consuming and prone to human error.

Advantages of using spreadsheets

Spreadsheets are simple to set up and ideal for businesses with very few transactions or those just starting out. Their benefits include:

Low cost: Excel or Google Sheets are often free or already included with existing software packages.

Flexibility: You can design your own templates and customise formulas for specific needs.

Control: You decide how data is entered and displayed without being limited by software settings.

Familiarity: Many people already know how to use spreadsheets, so there is no learning curve.

Spreadsheets can work well for sole traders or small side businesses with straightforward finances.

Disadvantages of using spreadsheets

Despite their simplicity, spreadsheets have several limitations that become apparent as a business grows:

Risk of errors: Manual entry increases the chance of mistakes that can distort your financial data.

Time consuming: Recording each transaction manually takes time and reduces efficiency.

No real time view: Spreadsheets do not automatically update when payments are made or invoices are issued.

Poor security: Files can be lost, corrupted, or accidentally deleted without a backup system.

Difficult collaboration: Sharing files between multiple users can lead to version control issues.

Lack of compliance tools: Spreadsheets are not compatible with Making Tax Digital, which requires electronic record keeping and digital tax submissions.

For larger or more complex businesses, these issues can lead to inefficiency and potential compliance problems.

Advantages of using cloud accounting software

Cloud accounting offers significant benefits for businesses looking for efficiency, accuracy, and growth potential.

Automation: Bank feeds import transactions automatically, reducing manual data entry.

Real time financial insights: You can see your cash flow, income, and expenses instantly.

MTD compliance: Cloud software connects directly to HMRC for digital tax submissions.

Collaboration: Multiple users, including your accountant, can access the system simultaneously.

Data security: Information is encrypted and stored securely in the cloud with automatic backups.

Professional reporting: Generate instant reports such as profit and loss, balance sheets, and cash flow forecasts.

Integration: Many systems integrate with other business tools like invoicing, payroll, and CRM software.

Cloud accounting saves time and provides greater visibility into your finances, which helps you make better business decisions.

Disadvantages of cloud accounting

While cloud accounting software offers many advantages, there are some potential downsides to consider:

Cost: Subscription fees can range from £10 to £40 per month, depending on the package.

Learning curve: You may need time to understand the features and functions.

Internet dependency: You need a reliable internet connection to access your data.

Too advanced for small users: For very simple businesses, cloud software may offer more features than necessary.

Despite these drawbacks, many businesses find the time savings and accuracy outweigh the ongoing subscription cost.

Which is better for your business

Spreadsheets are better if:

You are a sole trader or freelancer with very few transactions.

You prefer full manual control over your accounts.

You have no employees or payroll requirements.

Your business is not yet registered for VAT or MTD.

Cloud accounting is better if:

You want to save time through automation.

Your business is VAT registered or MTD compliant.

You have multiple users or work with an accountant.

You want instant insights into cash flow and performance.

You plan to grow and need scalable software.

For most small and medium sized businesses, cloud accounting quickly becomes the more practical and efficient choice.

The role of your accountant

Your accountant can guide you in choosing the best system for your business. They can:

Assess whether spreadsheets are sufficient or if software would be more beneficial.

Set up your cloud accounting system and connect it to your bank.

Train you or your staff to use it effectively.

Monitor your accounts remotely and provide real time advice.

Ensure compliance with Making Tax Digital and other HMRC requirements.

An accountant can also integrate budgeting, cash flow forecasting, and performance reporting into your accounting system, giving you a clearer view of your financial health.

Making Tax Digital and future compliance

HMRC’s Making Tax Digital (MTD) initiative requires businesses to keep digital records and submit returns electronically through approved software.

If you use spreadsheets, you will need bridging software to connect your spreadsheet to HMRC’s system. Cloud accounting, on the other hand, is already designed to meet MTD requirements, making it the more future proof option.

Final thoughts

Spreadsheets may work for very small or start up businesses, but as soon as your transactions increase or you register for VAT, cloud accounting becomes the better choice. It saves time, reduces errors, and provides valuable insights that help you grow your business.

With the help of an accountant, you can transition smoothly from spreadsheets to cloud software and take advantage of automation, real time reporting, and digital tax compliance. In most cases, the investment in cloud accounting pays for itself through better accuracy, efficiency, and control over your finances.