SIX disadvantages of using spreadsheets to rack investment property finances

Spreadsheets revolutionised how people do business. They got rid of pen and paper processes and dramatically increased efficiency.

But that was decades ago. When it comes to managing your investment property accounts today, spreadsheets no longer cut it. They’re prone to errors, time-consuming to keep up to date, and they’re not scalable.

1. They’re time consuming to keep up to date.

You’ll need to update your spreadsheet regularly. To do this, traditionally you need to sit down at a computer, go through your paper receipts and bank statements and manually enter each of your expenses one by one. This takes time and often it’s a tedious task that gets put off until the end of the tax year is upon you. And then you’ve got six months of accounts to bring up to date.

2. Prone to errors.

One of the biggest issues that people face when managing their books on spreadsheets, as mentioned, is manual data entry. Not only is this time consuming though, it often leads to errors. If you’ve got 100 or even 200 expenses that you need to enter and you’re trying to do so as quickly as possible, then a misplaced decimal or a mistyped digit can throw off your calculations by hundreds of pounds. On top of this, it is notoriously difficult to spot errors once they’re in the spreadsheet.

3. Reporting is difficult

As an investor, you want to be able to analyse various aspects of your finances from your P&L to your vacancy rates. Generally, generating a report that is understandable and pleasant to look at is at best a challenge and at worst, impossible when you use spreadsheets. What this means is that investors who use spreadsheets don’t have the clarity and insight into their finances that those with proper rental accounting software do.

4. No data visualisation

It’s also a challenge to create visuals from a spreadsheet. While you can generate basic graphs, doing much more than that just isn’t feasible. Data visualisation is important to better understand your historical data and to create projections for the future so you can scale your portfolio.

5. They’re not scalable

Spreadsheets are difficult to maintain, they’re hard to use communally, they’re prone to errors, you can’t access the data you need; these problems only get worse as you get more properties.

6. Making Tax Digital is coming

In April 2024 landlords will need to be compliant with the new making tax digital system being brought in by the HMRC. This system requires landlords to keep digital accounts and use software with digital links to submit quarterly updates and end of year submissions. With this new regulation, the HMRC are pushing landlords to operate more professionally, to adopt modern solutions and create professional businesses.

Ultimately, MTD is coming, and in order to stay compliant, landlords need to be looking at software to better manage their portfolio finances. This makes now a good time to start exploring solutions.

It’s time to find suitable software

We’ve outlined the challenges that come with managing your investment property through spreadsheets.

Whether you like it or not the government is forcing a change and you will need to adopt a modern system, whether that’s bridging software, accounting software, or an industry-specific solution. This though isn’t all bad.

This is an opportunity for landlords to bring their operations into the modern day and to gain all the benefits that software offers.

Good income and expense tracking software will save you time, make your accounts more accurate, even help you increase your operations profits. They will allow you to stay compliant with new regulations, and perhaps most importantly, they will give you the ability to run reports and visualise your data in a manner that allows you to create long term financial plans.

What makes a good landlord software?

There are a few key things to look for in the software that you select.

The first is you want to be taking advantage of Open Banking innovations. What this means is the software that you choose should allow you to connect your bank account so that you can view and reconcile transactions in real-time. This removes the need for manual data entry and reduces errors, and it will save you a huge amount of time.

Other key features to look for include a mobile app, so that you can access and update your data wherever you are, the ability to digitise receipts at the point of sale, digital storage for receipts and important documents, and it should have quality reporting and data visualisation tools.

Finally, you’re going to want to consider whether you go for general accounting software like Xero or QuickBooks, or whether you should go for an industry-specific software such as Landlord Studio.

The advantages of tailored software are that its designed to be easy to use and hard to make mistakes with. QuickBooks and Xero are general accounting software that require greater knowledge and have a steeper learning curve. They’re harder to use specifically when it comes to managing property accounts.

Consult with your accountant to see what they think best, and of course, to try various solutions before you decide to see what’s right for you.

Find out how Landlord Studio can save you time, keep you organised, and help you stay compliant.

©1999 – Present | Parkmatic Publications Ltd. All rights reserved | LandlordZONE® – SIX disadvantages of using spreadsheets to rack investment property finances | LandlordZONE.

View Full Article: SIX disadvantages of using spreadsheets to rack investment property finances