If I had to name just one application that elevated the PC from a hobbyist device to an essential business tool, it would be the spreadsheet. This happened almost three decades ago, when VisiCalc became the first killer app for the Apple II computer.

Ideally suited for developing budgets, VisiCalc was the key that opened the door for personal computers in many finance departments. Apple's newfound presence in businesses convinced IBM it had to develop a crash plan for its own PC to stave off this new and cost-effective competitor.

VisiCalc was one of a mere handful of apps available at the IBM PC's launch in 1981. While it is no longer sold commercially, you can download this pioneering program for free from developer Dan Bricklin's website.

No financial panacea

But while spreadsheets are still extremely useful, they aren't the universal answer to a business's financial management problems. Furthermore, better data controls can help you can make more effective use of spreadsheets.

Today, many small businesses rely heavily on Microsoft Excel for most or all of their financial needs, from budgeting to tracking customer accounts receivable and calculating employee payroll. I have a soft spot in my heart for the venerable spreadsheet, but it's simply not the best tool to handle all the number-crunching that a business requires.

The widespread inappropriate use of spreadsheets in business reminds me of the tale of the poorly trained carpenter who was shown how to use a hammer to drive nails. Since he was familiar with the hammer, he used it for all his woodworking - even for breaking a board in two. Most people would agree that a saw is a more appropriate tool for that job. Similarly, while a spreadsheet is well-suited for some financial applications, it's a poor choice for others.

Flexibility can be a drawback

When is a spreadsheet a poor choice? It's entirely too flexible for financial applications that need to follow specific rules. For example, I've seen too many payroll calculations performed on spreadsheets where it's too easy to make an error in income tax calculations and see no indication of the mistake. Furthermore, a spreadsheet makes it difficult to accumulate the net pay and deduction amounts necessary to prepare year-end tax forms and reports.

There's no excuse for relying on a spreadsheet alone when there are many easy-to-use and affordable payroll calculation applications. Read my 'Outsourcing Your Payroll' column for a look at some good options.

Accounting requires an audit trail

A spreadsheet is also a poor option for business accounting chores such as tracking the invoices you issue to customers, their payments and outstanding accounts receivable balances. Among other shortcomings, a spreadsheet lacks an authoritative audit trail that shows who entered what data, and when. An audit trail is an important tool for identifying and correcting financial errors.