Why Spreadsheets Don’t Scale for Business Entity Management

Spreadsheets have been widely used for managing data for various functions, including business entity management. However, as the complexity and sensitivity of business entity data increase, the limitations of spreadsheets become more apparent. This article will discuss the drawbacks of using spreadsheets for managing business entity information, focusing on version history, audit trails, connecting supporting documents with data, automation, and permissions.

1. Version History

Effective business entity management requires tracking changes in data over time, as organizational structures evolve and regulations change. Spreadsheets, however, struggle to manage version history efficiently. When multiple users access and modify the same spreadsheet, identifying the most recent version becomes challenging, leading to errors and confusion. Additionally, there is no built-in way to compare different versions of a spreadsheet, making it difficult to trace the evolution of the data and ensure its accuracy. A simple example of this is director and office changers. Spreadsheets do not automatically create a changelog or audit trail of changes, and they allow appointment records to be overwritten. This challenge occurs throughout an entity’s profile including ownership changes. Many functions, such as tax, are backwards looking and require historical information to report data to a previous points-in-time (e.x., December 31st of a previous year). 

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2. Audit Trails

A clear and detailed audit trail is crucial in business entity management for compliance and risk management purposes. Spreadsheets, however, lack a built-in mechanism for tracking changes made by different users. This absence of accountability can lead to data tampering or unauthorized access going unnoticed, exposing the organization to potential business and financial risks. As beneficial ownership and KYC reporting obligations require personally identifiable information (PII) to be reported, centralizing information such as birthdates, social insurance numbers, and scans of passports/ID is becoming more common. Storing of PII usually engages internal information security frameworks that require data governance around such information, including audit trails of access. Storing PII on shared drives or spreadsheets lacks the appropriate amount of data governance to comply with most information security frameworks. 

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3. Connecting Supporting Documents with Data

In business entity management, it is essential to link supporting documents, such as board consents, minutes, shareholder agreements, and regulatory filings, with the relevant data. Spreadsheets  do not provide an efficient method for associating documents with specific data points. While attaching files as comments or using hyperlinks is possible, these methods are cumbersome and may result in valuable context and supporting information being lost, hampering decision-making and increasing the likelihood of errors. Associating documents with data is a standard in most important business functions such as CRMs and ERPs. Imagine a finance function that was unable to link contracts or receipts to ledger entries. Having business entity data directly associated with supporting documents accelerates and reduces risk in due diligence, audits, and 

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4. Automation

Business entity management is full of low value administrative tasks such as going on scavenger hunts to communicate facts about entities and generating standard form documents. Spreadsheets, however, offer limited automation capabilities, often requiring manual data entry and manipulation. While creating macros or using add-ons can automate certain tasks, these solutions are typically complex to implement and maintain, particularly for users with limited programming skills. Most legal and finance leaders are always looking for opportunities to leverage their limited human capital and investing in a centralized entity management system is low hanging fruit to create efficiency and reduce human error. With entity management software, teams can instantly produce reports, corporate structure chart diagrams, standard form documents and eliminate scavenger hunts for basic entity information. 

5. Permissions

Managing access and permissions is critical when dealing with sensitive business entity information. Spreadsheets offer only basic access control features, such as password protection and read-only access. This limited functionality means that organizations cannot easily grant different levels of access to users based on their roles and responsibilities, leaving sensitive data vulnerable to unauthorized access and manipulation. For example, often organizations want to provide broad access to information such as the names and appointment dates of directors and officers of subsidiaries to streamline signing authority information but do not want to include the personally identifiable information (PII) such as home addresses, phone numbers, and birth dates of those individuals. To accomplish this level of granular permissions in a spreadsheet would not be possible without fragmenting the data into two sheets. However, in a well designed entity management system this can easily be accomplished. 

The Bottom Line

While spreadsheets may be a convenient tool for simple data management tasks, their limitations in handling version history, audit trails, connecting supporting documents with data, automation, and permissions render them unsuitable for effective business entity management. To manage business entity data more efficiently, organizations should consider adopting more robust data management solutions, such as specialized business entity management software like Athennian, which offer improved security, traceability, and automation capabilities.