There's no doubt about it: Running a startup is challenging. Data indicates that over 2,000 companies that secured an initial $1 million seed funding in 2021 are yet to raise additional post-seed financing, and another 2,400 companies that obtained seed funding in 2022 are also awaiting the next round of investments.
Regardless of the stage your startup is at, having a solid understanding of your finances is crucial for growing your user base, achieving key performance indicators (KPIs), and expanding revenues. Unfortunately, accounting and bookkeeping are among the most time-consuming and error-prone aspects of managing a business, and busy startup owners and C-suite executives often lack the time to spend poring over business reports, manually tracking financial data, or monitoring the accounting books.
What if you can complete all these tasks without human intervention? This is where automated bookkeeping, a game-changer for busy entrepreneurs, comes into play.
What Is Automated Bookkeeping?
Automated bookkeeping uses technologies like artificial intelligence (AI) and machine learning (ML) to streamline the process of recording and managing financial transactions. It involves using bookkeeping automation software to perform various accounting functions, from basic bookkeeping processes like journal entries to complex activities like financial statement generation, reporting, etc.
Contrary to popular belief, bookkeeping automation doesn't replace human accountants with software. Instead, the focus is on leveraging automated tools to perform time-consuming, repetitive tasks so that your team can focus on higher-level analytical and interpretative tasks requiring human expertise.
How Automated Bookkeeping Works
Manual bookkeeping is prone to human errors and often requires rework and multiple reviews. In contrast, accounting automation is quick and error-free, letting you focus your efforts on other core practices. Here's a closer look at how the automated bookkeeping process works:
Automated Transactions
With an automated bookkeeping solution, you no longer have to worry about downloading monthly bank statements. By connecting your bank accounts and credit cards to your smart bookkeeping software, bank transactions are downloaded automatically and synced with your accounts.
Furthermore, these smart accounting tools can sort and categorize your financial transactions into accounts payable (rent, utilities, vendor payments), accounts receivable (client invoices), or other relevant accounts. This categorization improves over time as the accounting software learns from your past data.
Data Entry And Reconciliation
Identifying and recording transactions in your accounting journal is the first step of startup and small business bookkeeping. However, even a single typo can lead to snowball effects when preparing financial statements like income statements, balance sheets, profit & loss statements, or trial balances.
Automated bookkeeping uses robotic process automation (RPA) and optical character recognition (OCR) to automate financial data entries. These systems use a rule-based protocol that mimics the actions of human accountants and automates data entries into your system.
Furthermore, automated bookkeeping software can interact with multiple tools in your accounting tech stack to gather data and make relevant entries in your accounting journal and general ledgers. Once data is entered, these tools perform periodic data reconciliation to verify the accuracy and completeness of your financial records, immediately alerting you to any discrepancies.
Report And Financial Statement Generation
Automated bookkeeping software simplifies generating financial reports like income statements, balance sheets, and cash flow statements. Most bookkeeping software has pre-built templates that make it easy to generate these reports with just a few clicks, plus customization options for tailoring financial reports to your specific needs.
The best part is that the software uses the already categorized and reconciled transaction data to generate these reports, eliminating the need for creating complex macros and looking up formulas in spreadsheets.
Key Benefits Of Bookkeeping Automation
Here are some of the key benefits of automated accounts:
Save Time
Automating repetitive manual tasks like data entry and report generation frees up valuable time for your accounting team. This allows them to focus on more strategic tasks like financial analysis, budgeting, and tax planning.
Enhance Accuracy
Manual data entry is prone to errors. Automation minimizes this risk by adopting bookkeeping best practices and eliminating the need for human intervention in data entry and transfer.
Improve Productivity
With less time spent on mundane tasks, bookkeeping automation can significantly boost the productivity of your CFOs and the accounting and finance teams. Accurate and organized financial records make report generation, tax preparation, and filing effortless.
Gain Real-Time Insights
Automated bookkeeping systems provide real-time access to vital financial data. This allows for better decision-making based on up-to-date information.
Improve Security & Accessibility
Automated bookkeeping systems typically offer robust security features to protect sensitive financial data. Furthermore, financial data can be accessed securely from anywhere with an internet connection, fostering collaboration and facilitating remote work.
Increase Cost Savings
By reducing manual labor and errors, automation eliminates the need to hire finance professionals, leading to significant cost savings in the long run.
How To Set Up An Automated Bookkeeping System
Here's a roadmap to help you switch to an automated bookkeeping system:
Step 1: Analyze Your Current Process
Before you automate accounting, take a step back and assess your existing bookkeeping system. This includes documenting your processes, the tools you use, and any bottlenecks you encounter. This will help you identify areas for improvement.
Step 2: Research Options
Start your search with factors like your business size, budget, and specific needs in mind. Many options offer free trials, allowing you to test-drive their features and see if they align with your needs. Consider factors like ease of use, customer support, payment processors, and scalability before making your final choice.
Step 3: Set Up & Prepare For Data Migration
Once you've chosen your software, it's time for implementation. This involves setting up bank connections, configuring automated rules for transaction categorization, and familiarizing yourself with the reporting features. You'll likely need to migrate your historical financial data as well. The chosen software might offer migration tools or support services to ease this process.
Step 4: Train And Communicate
The final step is to train and prepare your bookkeeping, accounting, finance, and any other teams that will use the new automated system. You can seek the software vendor's help to train your team members so that everyone understands the latest workflows and their roles within the automated system.
Join The Future Of Bookkeeping
Automated bookkeeping isn't just about saving time or money (although, let's be honest, we all love some cost and time-savings). Instead, it's about leveraging smart technologies like AI and machine learning to unlock enhanced financial insights and gain more control over your finances. Automate bookkeeping, grow your business, and achieve your financial goals. See firsthand how streamlining your finances with automation can lead your company toward financial success.
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