Many accounting teams rely on manual spreadsheets to account for their prepaid and accrued expenses. The accounting seems relatively simple, and accountants have been using Excel to pick up where bigger tools leave off for years. But accounting automation has come a long way and there are better solutions out there. While your manual solution might seem “free,” there are significant hidden costs that should make you consider investing in automation.
Hidden cost 1: Extra man-hours (and stress) during close
Most accounting teams do their prepaid and accrual accounting as part of their close process. The deadline pressure of close and the high risk of error in a manual process makes for a stressful combination. Most teams don’t have enough resources to easily absorb the extra work around close – leading to long hours and potential burnout. While accounting for prepaids and accruals via spreadsheet may look free on paper – the accountants who are staying late to complete the manual process during close would disagree.
Hidden cost 2: Increased audit scrutiny and risk premium
Manual spreadsheets lack an audit trail and require closer, more time-consuming scrutiny from auditors. Your “free” process has now increased their scope of work and your audit cost. Beyond that, manual processes are error prone, potentially leading to audit deficiencies. These deficiencies can escalate into increased testing and scrutiny for years to come, costing you even more time and resources down the line. Beyond these increased audit costs, there are indirect costs. Audit deficiencies or any indication of weak financial controls, undermine the integrity of the financial data your investors, creditors, and other stakeholders are relying on. This can erode their confidence, potentially impacting funding or partnerships, and likely increasing the risk premium for your organization.
Hidden cost 3: The opportunity cost of skilled accountant time
Manually accounting for prepaid and accrued expenses is time-consuming and labor-intensive. And it’s one of just many tasks you need your accounting team to complete. As accounting talent gets harder to attract and retain, devoting a skilled accountant to a manual process has more trade-offs. What was once a way to save on software now becomes a waste of limited skilled accountant time on tedious data entry, reconciliation, and error correction.
Hidden cost 4: The financial impact of undetected errors
It’s easy to overlook the potential impact of mistakes in accounting for prepaid and accrued expenses. Individually, these items often seem immaterial, and their accounting is relatively straightforward. It may be tempting to downplay the risk, but inaccurate accounting for prepaids and accruals leads to over or understated expenses which can have repercussions for a company’s daily operations or even its strategic direction. Errors in accrued expenses can distort cash flow projections, leading to misjudgments about future cash obligations or available cash. Less commonly, errors in accounting for prepaids or accruals can distort the financial position of a project or product and lead management to make poor choices about investments, operations, or resource allocation.
Summary
Manual accounting for prepaids and accruals is costly. What appears to be free can actually lead to increased man-hours, higher audit costs and risk premium, misallocation of skilled resources, and undetected financial errors. By understanding these hidden costs, businesses can recognize that investing in automated solutions, like FinQuery Prepaid & Accrual Accounting, isn’t an unnecessary expense, but rather a strategic move to improve efficiency, compliance, and controls. It’s time to move beyond the spreadsheet to bolster your internal controls, streamline your audits, and empower your accounting team with the tools they need to thrive.
