Is Excel still fit for purpose?

News of a major IT failure hit the headlines in autumn 2020, when the use of Excel spreadsheets in the UK’s Test and Trace system left almost 16,000 COVID-19 cases unreported. The public shock was almost palpable.

And yet the ubiquitous nature of Excel means it is estimated that more than 750 million people worldwide still reportedly use the spreadsheets (Microsoft doesn’t separate Excel from its Office Suite when providing user statistics).

So, has Excel had its day or is it knocked unfairly? And what are the alternatives?

For many small businesses and accountancy firms, Excel remains an essential piece of kit in their toolbox. But as an organisation grows, cloud-based Software as a Service (SaaS) products may provide a robust alternative to Excel.

SaaS products are widely available via a web browser or an app. Their functionality and ease of use have developed considerably in recent years. SaaS products are typically subscription services on a pay-as-you-go basis that are scalable and flexible. Their proponents argue that downsides of spreadsheets include poor functionality in interpreting data and the need for manual data entry, potentially leading to human error.

A 2020 QuickBooks survey found that business owners ‘strongly recommend’ using automated software for expense tracking, invoicing and payroll, underlining the importance of cash-flow management. On average, one in 10 said they waited too long to automate systems and invested in software too late.

Financial forecasting and planning apps are abundantly available with varying degrees of functionality; some of the most well known are Fathom, Spotlight Reporting and Futrli. According to Xero, a cloud-based accounting software platform that integrates these apps into its system: “Fathom is ideal for leading advisory teams, automating workflows and providing unprecedented efficiency.”

Built by accountants, Spotlight Reporting is one of Xero’s top reporting and cash-flow forecasting apps. It is reportedly the preferred choice of the Big Four and larger accounting firms.

Futrli’s Predict is a hybrid forecasting tool that connects with the online ecosystems of both Xero and QuickBooks. It offers three-way, short-term forecasting, which incorporates cash flow, profit and loss, and balance sheets to provide predictions.

Aside from the above products, Della Hudson, business coach and chartered accountant, says that she has recently been researching Float and Fluidity as SaaS products for short-term forecasting.

Float is a cash-flow forecasting and scenario planning tool; Fluidity is an automated cash-flow management tool. Both connect with Xero and QuickBooks platforms. Float also connects with customer cloud accounting software FreeAgent (which you can get free if you have a business current account with NatWest, Royal Bank of Scotland, Ulster Bank NI or Mettle).

Yet, despite claims of functionality, availability and ease of use, take-up is slow among accounting firms and small businesses.

David Gormer, a chartered accountant and founder of Square Mile Accounting, which works with tech and SMEs, says some SaaS products still have work to do. “We’ve tried as many of the SaaS products out there as possible on such things as cash flow, balance sheet and profit-and-loss forecasting for our clients. For instance, the Xero ecosystem has hundreds of apps and overall is hugely valuable for scaling a practice, but many have more emphasis on looking nice than having good functionality.

“The forecasting apps are fine if you have a really straightforward business model, such as ordering and selling widgets online. But as soon as the business model gets a bit more complicated or multiple key performance indicators (KPIs) are involved, it takes far less time to create and iterate a model in Excel than the SaaS packages we’ve used, such as Futrli,” he says.

“For complex business models, often the functionality is just not available in the SaaS packages or, where it is, the process of iterating it is too time consuming,” he adds.

The decision for many firms and SMEs lies in the cost of some SaaS products compared with Excel. But it’s not just the cost of the software – the time involved in training, both finance teams and the wider business, is also a factor.

Aaron Townsend, head of finance at Habito, an online mortgage broker and lender, says he’s searched the market to see what’s available for the small but fast-growing business, but he found that Excel remains the best tool currently for the broker in terms of financial planning and analysis. “For small businesses, Excel is a very inexpensive and extremely powerful tool,” he says.

Excel gets Gormer’s backing, too. “For most SMEs, a robustly created Excel model is fast, flexible, economical and is going to give forecasts with the best insights, as it is tailored to their business.”

As Microsoft’s CEO Satya Nadella once said, the company may be more renowned for the Xbox, but it is Excel that most people should recognise it for.

Habito has, however, invested in add-on business intelligence software that integrates with Excel. It began using Looker, a data analytics start-up bought by Google in February 2020 for $2.6bn, when the online broker had around 20 staff.

Looker combines financial and non-financial data into one place visualised through a dashboard, is cheaper than many SaaS products and, crucially for Habito, integrates with Excel spreadsheets.

“Instead of the finance and commercial teams having to send lots of spreadsheets to heads of departments, we can show them the Looker dashboard. It gives everyone a central place to look at KPIs and you can limit access. It also allows different departments to slice and dice their KPIs,” Townsend says.

He adds that as Habito has grown to employing around 150 people, Looker has “grown with us and got better and better”.

Increasingly, Townsend notes, job descriptions for finance positions, particularly financial planning and analysis roles, request experience of Looker or Tableau, which is Looker’s main competitor.

One potential obstacle for small, fast-growing businesses wedded to Excel is their reliance on a single expert. Gormer says the challenge for accountancy practices is in creating Excel models to “a high, well-documented standard, so when your Excel wizard disappears, the model can still be well maintained”.

However, this risk is easy to overcome once you recognise it, by ensuring that you train more than one person in Excel modelling and management.

Gormer says: “SaaS is great for big firms with lots of clients in a similar market and large resources to create a standard package for them. Maybe also for smaller practices with a tight niche market with a well-understood business model. Most accountants have a range of clients in different sectors, so one-size-fits-all does not work for them.”

How can SaaS product providers encourage greater adoption among SMEs and small accounting firms? Some suggest providers could increase adoption by making the products look more similar to Excel so it would involve less training, and perhaps consider the price. Not all subscription models’ pricing is transparent, which can sometimes lead to overspending when you need customisation or other extra tweaks to the products.

Excel hasn’t yet been usurped by upstart SaaS tools and maybe never will, but it’s clear that many businesses and firms are now migrating to at least one other advanced analytics tool, even if they continue to use Excel. Perhaps the future remains a combination of both, particularly for small firms and businesses.

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Further reading on Excel and Software as a Service apps is available through the resources below.