Month-End Close Software vs. Excel: What’s Better?

The month-end close is a critical accounting period for any organization since it analyzes financial reports to determine financial health. The financial reports released by the accounting team also assist an organization's stakeholders in undertaking fundamental decisions regarding the company's future.

Considering this, the finance team must produce accurate financial statements free from human error for the month-end close process.

Over the years, the finance team has relied upon Excel to undertake the month-end close process. This involved the application of manual processes in analyzing accounting reports such as balance sheets, journal entries, and invoice statements.

However, with the evolution of technology, accounting software has replaced Excel in the month-end close processes. Organizations have integrated automated software into their accounting systems, aiding real-time financial reporting while limiting the risk of errors associated with the month-end close processes.

This article will analyze Excel and month-end close software, looking into each pro and cons to determine which application best suits the organization. Additionally, we will look into how Xenett applies its accounting system to the month-end close process.

Excel

Excel is a widely used application for recording and analyzing financial statements. Almost all accounting professionals know how to use Excel's manual processes. Despite its simplicity compared to emerging accounting software, it is still the most preferred. This is because it facilitates the customization and manipulation of data.

Advantages of Using Excel

Accessibility and Familiarity

Every finance team member is familiar with Excel, as learning institutions teach it as an essential accounting skill. Hence, its widespread familiarity makes it easy to onboard new team members and ensures that everyone can work with the tool.

Additionally, an organization does not have to spend a lot of resources since minimal training is required for its basic usage in the month-end close process.

Cost-effective

Excel is the best option for small to medium organizations that do not require robust features since they do not handle complex accounting processes. This is because Excel is already part of the standard software suite. Thus, they do not need software solutions to deliver what they can get from Excel.

Flexibility and Customization

Excel's open-ended nature facilitates the customization of its operations, enabling users to tailor spreadsheet templates for income statements, cash flow statements, bank statements, or other financial records to match their specific needs, tasks, and custom workflow.

Ease in Data Manipulation

Excel offers finance leaders robust data analysis and pivot table functionalities for data manipulation, financial reporting, and analysis, facilitating their month-end closing process.

Financial Reporting

Excel's charting and graphing capabilities and data manipulation tools allow you to create visually appealing reports and dashboards to communicate financial information effectively.

Ad-hoc Analysis

Excel is excellent for exploring data and performing ad-hoc analysis. The accounting department can easily filter, sort, and pivot data to answer specific questions and investigate trends, facilitating informed decisions by company stakeholders.

Setbacks Associated with the Use of Excel

Lacks Automation

Accounting processes, mainly the month-end close, deal with vast amounts of data from different departments. To guarantee financial accuracy, every step and financial transaction needs to be reflected in company records, an issue that can be challenging when using Excel.

This is because Excel relies mainly on manual processes, which can be time-consuming, especially when dealing with repetitive tasks, and unreliable as some data might be missing or recorded in a different journal entry.

When data volume increases, Excel cannot process financial data, leading to inefficiency in the accounting processes.

Prone to Errors

There is the risk of error when handling vast amounts of accounting-related data when working with Excel. Despite the accounting team being capable and working according to set accounting standards, Excel does not have task management programs that track tasks to enforce accountability among team members.

Additionally, Excel works with manual data entry, complex formulas, and the lack of a built-in error-checking program, making the accounting processes tedious tasks for accounting professionals. This leaves them vulnerable to making errors in financial reporting, affecting the entire month-end close.

Lack of an Audit Trail

Tracking changes and identifying the source of errors in Excel can be very difficult. The failure to maintain an audit trail leaves an organization vulnerable to compliance issues with the government and regulatory bodies. Further, poor internal control can derail the month-end close process.

Security Risks

Due to the limited control on who has access to financial reports and accounts in Excel, spreadsheets can be easily viewed, shared, and modified, posing security risks to sensitive financial data.

Additionally, since there are no tracking tools that can show who gained access to information in the company accounts, the level of accountability by the finance leaders diminishes. Doubts by the stakeholders regarding the financial position being represented during financial reporting at the month-end close.

Scalability Challenges

Small to mid-sized businesses look forward to growing their operations and business processes. Although Excel seems like a good option, it does not support their vision since it cannot handle large volumes of data.

Excel can become slow, cumbersome, and difficult to manage when many reporting processes occur. Large spreadsheets can be prone to crashes and data corruption.

Version Control Issues

As a financial system, Excel does not support multiple users using the same accounting spreadsheet, as it can lead to data override, version control issues, and confusion for those relying on financial statements to analyze financial performance.

Further, the inability of the finance teams to perform task-track revisions on financial reports can lead to chaos and inaccuracies in analyzing financial performance or holding people accountable.

It Limits Collaboration

Although the sharing of Excel drives is available, sharing financial data is impossible through other means. Excel doesn't have the robust collaboration features in management software.

This implies that key tasks such as assigning tasks, progress tracking, real-time data manipulation, and real-time collaboration are challenging when it comes to using Excel.

Thus, collaborating with other stakeholders in real-time proves difficult, and the month-end close might face the risk of delays and, at times, inaccuracies.

All financial systems face challenges. However, there are protocols if implemented, can prove efficient for use by an organization.

Though Excel has major setbacks, small and midsize companies can implement the following practices to enhance efficiency and reduce risks associated with the month-end close process.

• Perform regular data back-ups on your spreadsheets to prevent data loss due to crashes or corruption.
• Have authorized access to financial spreadsheets despite their significance. This is because all financial records can be used to evaluate the company's corporate performance management and financial health.
• Double-check all formulas used in the Excel spreadsheets and ensure they are correctly referenced in the appropriate cells.
• Explore Excel add-ins that can enhance its functionality for time-consuming tasks. This will work to enhance the accounting workflow.
• Everything related to the financial records should be documented. From the accounting procedures, calculations, and the entire process of the month-end close.
• Use data validation features to restrict data entry to specific formats and values, reducing data entry errors.
• The financial teams should restrict version control by establishing a control system to track changes and prevent data overwrites.

Month-End Close Software

Month-end close software is specifically designed to counter the challenges posed by using Excel, an essential accounting tool for financial consolidation. There are numerous software in the industry, and organizations can select from the available options based on their specific needs.

Advantages of Using the Month-End Close Software

Automation

Accounting software automates repetitive and complex key tasks such as data entry, reconciliation process, journal entries, and financial report generation. These tasks were prone to errors when previously done through manual processes, leading to performance issues. However, the accounting team can save time and ensure accuracy with automation.

Enhances Collaboration

The use of management software in the month-end close has built-in collaboration features such as a real-time dashboard and real-time visibility that facilitate seamless workflow among the finance team, track progress on routine tasks done by each department, and facilitate communication.

Improves Accuracy in Financial Reporting

Many month-end close software solutions offer automation features that decrease manual tasks and reduce errors. Leading to improved accuracy when it comes to financial reporting of the month-end close

Centralized Data Management

Most month-end close software has a centralized platform where all financial data and related documents are stored. All associated stakeholders and approved personnel can have access to the platform, and they can make changes to financial information as the reporting period progresses.

The centralized data management provides the company with real-time insights into the organization's financial position, allowing the stakeholders to make data-driven decisions that facilitate strategic planning.

The accounting team can keep their team on track regarding financial reporting through the platform since it facilitates monitoring tasks and allows any entries or adjustments to be tracked. This also promotes transparency in the month-end close process, as every action is visible.

Scalability

Month-end software solutions have advanced features designed to handle large volumes of data and can scale with business growth. A mid-size business can start using the software once they realize that their needs are increasing and that the financial reports are becoming complex compared to their capabilities.

There are different software, and a business can choose the ideal finance solution for their operations in the future.

Workflow Management

Accounting software facilitates creating and managing standardized month-end close workflows, ensuring consistency and customizable workflows that enhance user experience and compliance.

Audit Trail

Business owners use accounting software to automatically generate audit trails, providing a clear record of all transactions and changes made to financial data during the audit process. This simplifies audits and enhances compliance with accounting standards and business rules.

Enhanced Security

Software platforms provide built-in tracking and reporting tools, making monitoring progress and generating financial reports easier. Other robust security features, such as access controls and data encryption,  protect sensitive financial information. 

Version Control

Accounting software automatically tracks changes made to financial data, matches payment between invoice reports and bank statements, and maintains version history, ensuring data integrity and simplifying audits.

Disadvantages of Month-End Close Software

Steep Learning Curve

Not everyone is familiar with automation software since it involves some technical skills. This might pose a challenge to some employees and clients. Learning might take valuable time, dragging some financial processes related to the month-end close.

Cost

Implementing a software solution can be costly despite the benefits the finance department might derive in the future. Not to mention, the ongoing subscription fees recur monthly and can be expensive depending on the number of features available and the number of users.

Integration Challenges

Integrating accounting software into existing financial systems might encounter issues like resistance from existing accounting professionals. Additionally, the business owner must acquire expert skills to facilitate learning for the new financial performance platform.

Which Application Best Suits Your Organization

The best option between month-end close software and Excel will depend on several factors.

• Business size and complexity of operations: Businesses with limited operations and basic users find Excel sufficient while accounting software is suitable for organizations with many users and complex operations.
• Budget: businesses with a higher budget facilitating their accounting operations should consider accounting software. As for small to medium-sized operations with a limited budget, using Excel is a feasible option.
• Data volume: Organizations handling vast data volumes will need a fast software solution with limited errors. However, for small companies with small data volumes, the use of Excel is sufficient for accounting activities associated with the month-end close.

Xenett as a Month-End Close Software

As an accounting software, Xenett is an efficient tool for the month-end close process due to its robust features and software tools. These are:

Centralized document storage: Xenett has a cloud-based document storage system where all stakeholders with authorized access can retrieve and store financial data.

Automation: Xenett software automation facilitates real-time data manipulation and data entry, eliminating the use of error-prone manual entries. It can detect and fix errors as soon as the incorrect entry is made.

The auto-review feature guarantees accuracy in financial reporting even when dealing with vast amounts of data. This is because Xenett used AI-based data checks, which save valuable time and eliminate manual efforts.

Authorized access: To ensure data safety, Xenett has security measures in place to authenticate access and track data movement.

Client portal: Xenett client portal facilitates communication and collaboration between the client and the accounting team ensuring real-time insights in strategic planning.

Fast system: Xenett's features revamp the close process enabling an accounting firm to conduct an accurate, reliable, and fast close process.

Some of these features include: dashboards that help track the close process, Link Workpapers that offer a convenient spot to view financial reports, and a close checklist that directs the close process.

Conclusion

Although Excel is considered a useful tool for basic accounting tasks, it has limitations when it comes to managing the complex and critical month-end close process. It faces challenges in its integration capabilities, as a security model it fails to meet expectations, and faces numerous communication bottlenecks.

However, for small to mid-sized companies, Excel is the best option. It is cost-effective and reliable in handling small consolidation processes. Many in the accounting team are familiar with its reporting capabilities, and spreadsheets can be customized.

On the other hand, dedicated month-end close software offers significant advantages in terms of automation, a secure workspace, accuracy, collaboration, security, and scalability.

As businesses grow and their financial operations become more complex, investing in a dedicated software solution is often the best way to streamline the month-end close. Month-end software facilitates accurate reporting and frees up valuable time for strategic activities.

Thus, before selecting which option is best for your organization carefully evaluate your needs and consider the long-term benefits before making a decision.

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