What is automated bookkeeping? + How to use it

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 advanced technologies like artificial intelligence (AI) and machine learning (ML) to streamline the bookkeeping process of recording, categorizing, and managing financial transactions. 

These empower bookkeeping automation software to perform various accounting functions, from basic bookkeeping processes like journal entries to complex activities like financial statement generation, reporting, etc.

For example, here’s how some specific AI and ML techniques facilitate various bookkeeping and accounting processes:

• Optical character recognition (OCR) converts scanned documents like invoices, receipts, and bank statements into machine-readable text
• Natural language processing (NLP) algorithms extract key information from that text, such as vendor names, dates, and transaction amounts
• Supervised learning models train on labeled historical data to learn about transaction categories and proper expense management
• Rule-based AI engines encode accounting logic, teaching the software to follow appropriate “if-this-then-that” rules

Thanks to these technologies, an automated bookkeeping tool can become more accurate over time, continuously improving through exposure to new data. However, contrary to popular belief, bookkeeping automation doesn't replace human accountants.

Instead, the focus is on leveraging automated tools to perform time-consuming, repetitive tasks so that your accountant and finance team can focus on higher-level analytical and interpretative tasks requiring human expertise.

How automated bookkeeping works

A human bookkeeper is prone to errors, and their work often requires multiple reviews. In contrast, accounting automation software is quick and error-free, letting you focus your efforts on other core practices.

Here's a closer look at how the automated accounting process works:

Automated transactions

With automated bookkeeping services, 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 invoice processing), or other relevant accounts. 

This categorization improves over time as the automated 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 OCR to automate financial data entries. 

These automated 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

An automated bookkeeping service 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 automated 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 bookkeeping 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.

Automated Bookkeeping Case Study

TeamBridge, a fast-growing workforce management startup, struggled to provide the data their investors wanted in a timely fashion. Pilot, their accounting platform, couldn’t automatically calculate key metrics, like their burn multiple and revenue growth.

TeamBridge’s founders were consistently digging through Google Sheets, transforming data, and converting it into informative graphs by hand to satisfy their investors. In other words, they were spending far too much time on a manual bookkeeping task.

To address the issue, TeamBridge switched from Pilot to Zeni, a more automated bookkeeping system and accounting firm. Zeni provides the metrics their investors want in real-time, freeing TeamBridge’s founders to focus on more valuable tasks. 

By the time TeamBridge reached 100% company adoption, they were able to reclaim a whopping 53 hours per month.

How to set up an automated bookkeeping system

Here's a potential roadmap to help you switch to an automated bookkeeping system, as well as an estimate of how long each step might take:

1. Audit your current bookkeeping processes to identify pain points you’d like to resolve, such as bottlenecks, error-prone processes, and time-consuming manual tasks (2–3 days)
2. Document financial data sources and workflows to make sure you carry over everything to your new accounting system (1 day)
3. Research and select the right solution based on factors like cost, scalability, ease of use, and relevant features (1–2 weeks)
4. Customize your chart of accounts and define transaction categories to help the new system with income and expense tracking (2–3 days)
5. Connect your bank accounts, credit cards, payroll, and payment processors to enable real-time transaction syncing (1 day)
6. If applicable, import historical transaction data so the system has enough context to learn your bookkeeping patterns (1 day)
7. Configure basic automation rules for categorizing expenses, vendor types, and revenue sources (2–3 days)
8. Test your system’s accuracy by reviewing categorized transactions and flagging anything classified incorrectly (1 week)
9. Give your team initial training on the new bookkeeping platform and workflows (3–4 days)
10.  Continue optimizing by refining automation rules and reviewing system suggestions as your business evolves (ongoing)

Automated bookkeeping solutions are more efficient than ever, but adopting them can still be a challenge. For example, you may have technical issues during migration, such as missing historical data, API connection issues, or delayed syncs with bank feeds.

There can also be a steep learning curve, even with relatively user-friendly accounting platforms. Plan for several days of upfront training and an adjustment period of at least a few weeks as your team adjusts.

Your solution may also need some time to learn your business’s unique transaction patterns. For example, it may start with roughly 85% to 90% categorization accuracy, requiring manual intervention for 10% to 15% of transactions until it adapts.

How to Choose Automated Bookkeeping Software

The right automated bookkeeping solution for your business depends on a variety of factors, including your business size, budget, and feature requirements. Here’s a simple list of dimensions you can use to evaluate potential options:

• AI and automation capabilities
• Reporting timeliness and flexibility
• Integrations with your existing tools
• Ease of use and adoption for your team
• Scalability as your transaction volume grows
• Customer support options for when issues arise

Depending on your business, you may want to weigh some of these factors more heavily than others. For example, solopreneurs might prioritize ease of use and affordability, while growing startups might care more about integrations and scalability.

Of course, it’s also essential to factor in price, including the monthly subscription fee and cost of implementation. However, remember to consider return on investment (ROI) in addition to base expenses. 

For example, you might assess your potential ROI with a formula like:

Monthly Savings = (Hours saved per month x hourly labor cost) – Monthly software cost

Say you estimate a new software will save your team 20 hours per month, and that their time is worth $50 per hour on average. If the cost of the new software is $100 per month, it would save you the following per month:

(20 hours saved per month x $50 hourly labor) – $100 software cost per month = $900

Bookkeeping Software Options

Here are some examples of automated bookkeeping software solutions to consider for various types of businesses:

• Solopreneurs with less than $500K in revenue: Wave Accounting is an attractive option for a solo small business owner due to its intuitive user interface and affordable subscription options, which include a free plan containing many of its core features. 
• Small businesses with $500K to $5M in revenue: QuickBooks Online and QuickBooks Desktop provide unrivaled integrations and flexible subscription options, allowing you to pay for the features you need. Each accounting app is also considered relatively easy to use.
• Fast-growing startups with $5M+ in revenue: Zeni delivers next-generation automation thanks to its advanced AI bookkeeping engine. It’s also highly scalable, with more than $1.3 billion in monthly transactions already under management, and each subscription includes a dedicated expert support team.

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.