When Excel Is Fine — And When It's a Liability

Excel isn’t the problem.

I need to say that upfront because I’ve watched too many consultants walk into small businesses and immediately declare war on spreadsheets. “You need a real system,” they say, usually meaning an expensive one.

But Excel is genuinely good at what it’s designed for. The problem is when it becomes something it was never meant to be.

Where Excel Works

Excel is excellent for analysis. Taking a dataset, exploring it, building models, testing scenarios — this is what spreadsheets do well. One person, one file, asking questions of data.

It’s also fine for simple, stable lists. A reference table that rarely changes. A personal tracking sheet. A one-off calculation.

In these cases, Excel’s flexibility is a feature. You can structure data however you want. You can build formulas that fit your specific needs. You don’t need to configure anything or train anyone.

For a lot of small business tasks, Excel is not just adequate — it’s the right tool.

Where Excel Breaks

The problem starts when Excel becomes the system of record for things that change, require collaboration, or have compliance implications.

Version control. As soon as two people need to work on the same data, Excel becomes dangerous. Q4_Budget_v3_final_FINAL_updated.xlsx. Which one is current? Who made changes? What did they change? You don’t know. You can’t know. There’s no audit trail.

I’ve seen businesses make significant financial decisions based on outdated spreadsheets because someone was working from the wrong version. Not because anyone was careless — because the tool doesn’t support what they were trying to do.

Single points of failure. The spreadsheet lives on someone’s laptop. Or on a shared drive that one person manages. Or in an email attachment chain. When that person is sick, on vacation, or leaves the company, the “system” becomes inaccessible or incomprehensible.

I once watched a business nearly miss payroll because the person who maintained the payroll spreadsheet was hospitalized and no one else understood the formulas.

Audit trails. If you ever need to prove what was true at a specific point in time — for compliance, for disputes, for your own understanding — Excel can’t help you. Files get overwritten. History is lost. “What was our inventory count on March 15th?” becomes an unanswerable question.

Scale. Excel has limits. Row limits, performance limits, complexity limits. When your customer list hits 100,000 rows, when your formula chains get deep enough, when your file size grows large enough — things start breaking. Slowly at first, then suddenly.

The Real Question

The question isn’t “should we use Excel?” It’s “what are we using it for?”

Analysis: probably fine. Build your models, run your scenarios, make your charts. Excel is great for this.

Operations: probably not fine. Anything that multiple people need to update, that requires history, that changes frequently, that has compliance implications — this needs something else.

The trap I see businesses fall into is using Excel for operations because it’s familiar. They start with a simple tracking sheet. It works. They add complexity. It still works. They add more people, more data, more dependencies. By the time it stops working, they’ve built their entire operation around it.

The Migration Problem

Here’s the uncomfortable part: moving off Excel is hard.

Not technically hard — there are plenty of tools that can replace any given spreadsheet. But organizationally hard. People know Excel. They’ve built their workflows around it. The formulas encode years of institutional knowledge that nobody documented.

This is why “just use a real system” is bad advice. The real system might be better, but the migration cost is real, and the benefits are often invisible until something goes wrong.

What works better: identify the specific pain points. Where is Excel actually causing problems? Version confusion? Collaboration bottlenecks? Compliance gaps? Address those specifically, rather than replacing everything at once.

Sometimes the answer is a proper database. Sometimes it’s a purpose-built tool. Sometimes it’s just better spreadsheet practices — shared cloud files instead of email attachments, protected cells, documented formulas.

The Bottom Line

Excel is fine for analysis. It’s dangerous for operations.

The danger isn’t the tool — it’s using the tool beyond its design constraints. Excel wasn’t built for multi-user collaboration, audit trails, or enterprise-scale data. When you use it for those things, you’re building on a foundation that will eventually crack.

Know the difference. That’s the discipline.

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Related

• Article: What Breaks First When a Small Business Grows — The predictable failure points when informal systems meet scale.