Good reason to hate spreadsheets

“Wrong information with credibility is worse than no information at all.”

Most small businesses in North America use spreadsheets or shoeboxes to “organize” their financial information. Most small business owners hate spreadsheets, but they use them anyway because, well, they hate accounting applications more.

But the question for some small businesses remains: Why do you need a more than a spreadsheet? Does it really make a difference? Check out a recent blog post by Bill Inmon, a data warehouse guy who contributes to B-eye-Network.com. His attention is on big businesses, but the implications are easy to extrapolate to small businesses, too.

He paints an amusing (though troublingly accurate) scenario that goes like so:

Big Company has a meeting with Sales, Marketing, Accounting, Manufacturing and Finance. Each department brings a spreadsheet with compelling information. But the information doesn’t jibe. Each department built their own spreadsheet, and maybe the data isn’t identical, or maybe the reporting periods aren’t aligned, or maybe they did their calculations differently. But come meeting time, the various spreadsheets indicate that Big Company needs to hire 50% more staff, or lay off 10% of staff, and everything in between.

Which leads to Inmon’s punch line, which I excerpted above:

The spreadsheet, in fact, may be a liability when incorrect information is presented on it. When incorrect information is presented on a spreadsheet, it achieves the cachet of credibility, even when it is not credible information at all. And wrong information with credibility is worse than no information at all.

What Inmon says about big business holds for your small business, too. It’s easy to draw the wrong conclusions when you’re only looking at part of the picture. The beauty of an accounting application for small businesses, like Wave Accounting, is that the data — on which you’re basing your day-to-day business decisions — lives cohesively in one place, and the reports that are generated are done right. With less work than you’d put into a spreadsheet, you’ll have much more business intelligence, and the quality will be better. You’ll have a better grasp of basic details (like who has paid you, and who is well past due). Your banker will be able to get a proper picture of how successful your business is, improving your ability to get a loan. The info you can get from an accounting application can totally change your understanding of your business when presented in a way that makes sense.

We’ll soon be rolling out some tutorials on what metrics a small business needs to follow, so please stay tuned for more.

(This entry originally appeared in an earlier version of the Wave Accounting blog for small business.)