Transform Your Business With Spreadsheet Accounting – Part 1

When a new client approaches me to do their accounting for them, they often bring in their previous financial “system”… which usually consists of cardboard box overflowing with files, receipts, envelopes, and notebooks of spreadsheets. The first thing I do, before I start any official “help-them-save-money-and-make-more-money” accounting work, is to roll up my sleeves and systematize the avalanche of papers.

If your small and growing business doesn’t have an accountant yet, or if you want to make it really fast for your accountant to get through your records and start delivering the meaningful insight that you are hiring them to provide, you need to build and implement a spreadsheet-based accounting system as early as possible.

Here’s how to do that:

Step 1: Open your favorite spreadsheet.
You should use something that most accountants will use (so that when you pass your work to them, they can access it easily). So consider Microsoft Excel or Google Spreadsheets.

Step 2: Create 3 sheets.
Within each spreadsheet file, down near the bottom of the screen, is a place to create sheets. You’ll want to have 3 and you should rename the sheets to read: “cash flow statement”, “income statement”, and “balance sheet”.

Step 3: Format each sheet.
The cash flow statement measures the flow of money into and out of your business over a period. So, you’ll want to format your sheet so that you measure the period across the top (weekly or monthly, depending on how much cash flow you have), and then the following labels in the rows below:

• Opening balance
• Cash from sales
• Cash paid out
• Closing balance

The income statement, also known as your “profit and loss” statement gives you a snapshot of your business’ profitability over a particular period. So, make sure you include the period at the top of the sheet and then put the following labels in the rows below:

• Sales
• Cost of sales
• Gross profit
• Expenses (which you’ll want to itemize individually, including wages, rent, utilities, etc.)
• Net profit

The balance sheet gives a snapshot of the accumulated success of the business in a given period. So, make sure that the period is listed across the top of the sheet and then put in the following labels in rows below:

• Assets (itemize these as cash, physical assets, receivables, stock)
• Liabilities (itemize these as capital, loans, and payables).

The basic spreadsheet is set up. The important thing to remember is this: On their own, spreadsheets don’t really matter. They are a means to two ends:

1.    Providing valuable records so that your bookkeeper, accountant, stockholders, and IRS (if they ever audit you) have all the information they need at their fingertips.
2.    Providing you with real insight into your business so you can make better business decisions.

In an upcoming blog I’ll show you how to put your spreadsheets together so they are automated and useful for you!