Accounting is becoming an automated job. It’s no longer a question of if or even when—it’s now. The future of accounting is undeniably automatic. This doesn’t equate to putting accountants out of jobs (more on that later), but it does mean less of a headache and time suck for business owners.
While not an easy task, accounting and bookkeeping are perhaps the most important pillars of the business industry. When properly managed, accounting gives you a way to understand how your business is doing and identify important requirements to keep your business running. It often becomes a dreaded chore for business owners. This is where automation can be a game changer.
To help you get a better grasp on accounting automation, we’re exploring its benefits, how it affects accountants, and approachable ways for businesses to begin integrating it. In this post, you’ll find:
- What is automated accounting, and is it really necessary?
- How automated accounting affects CPAs
- Issues with manual accounting
- Benefits of automated accounting for business
- Ways in which automated accounting will change how you conduct business
- How to integrate accounting automation
Automated Accounting: What It Means and Why It’s Necessary
Human error is one of the greatest challenges of traditional methods for bookkeeping. This is also a core reason for automation.
Automation means employing artificial intelligence software and robotic systems to mechanize various business processes. Accounting is just one of the many business processes that can be automated, as there is a myriad of other AI applications in other sectors. Using software specifically to automate accounting helps maintain updated accounting records, ease data entry for payables and receivables with minimal error, and expedite the process. In effect, the configuration in the software helps keep financial records in line with established accounting principles.
In light of the many practical solutions that accounting automation, or just automation in general, provides businesses, there’s a growing demand to incorporate it. Not only does integrating such technology help keep businesses in line with or ahead of their competitors, but it also enables them to better serve customers and can incite growth.
External demands bring about internal pressure for operational efficiency, improvement of profit margins, cost-effectiveness, and proper resource management. The environment pushes for a sustainable solution in the financial and accounting department and accounting automation is a practical solution.
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What Accounting Automation Means For Certified Public Accountants
The job of an accountant is a lot more involved than just adding and subtracting. This will make it impossible to automate the entire thing. So don’t worry. Computers won’t be replacing accountants anytime soon.
Businesses Still Need the Guidance of Accounting Professionals
Businesses still need accountants to run, develop, and grow in a cost-effective and efficient manner. Mechanization in the financial sector does not take away the roles of the finance department. Rather, it is a revolution or modernization of the traditional role of the CPA and other professions in the financial sector.
Automation takes care of the caution-filled, tedious work that accountants previously did when manually entering, crunching and reconciling numbers. It greatly minimizes the man-hours put into the work and the errors that come with being human. It allows the accountant time to take care of the more important duties of a chief financial officer, such as enhancing profits and increasing cash flow, advising the CEO, strategizing and budgeting for the expansion of the business, and upgrading KPI’s among other crucial roles.
Moreover, using accounting software does not mean that the business has no need for people who can understand, explain, and analyze the numbers. So another transformative role that accounting automation brings to the table is that finance professionals go beyond being mere number crunchers.
They become the managers and custodians of this information. The industry requires people with an understanding of the information processed by the software to organize, manage, and interpret the system’s output.
The Efficiency of Accountants Will Sky Rocket
Using software, therefore, increases in the efficiency among accounting professionals rather than taking over their roles and replacing them. It helps financial officers gather and interpret the information in a faster and more accurate way. The result is better analytics and reporting for the business and faster, more strategic financial decisions.
Accountants Will Need to be Nimble In Their Roles
Research by ACCA says that accounting automation will continue to make an impact in the industry over the next couple of years. The time has come to throw the old school of thought out the window and get with the times. CPAs, company financial teams, and especially accounting firms should, therefore, find ways to integrate their roles with this move so as to ensure job security.
Issues with Manual Accounting
If you’ve already been running a business using traditional, manual accounting methods, you know how difficult it can be. From the costs to the potential for mistakes, it can lead to a number of small and large messes that can hurt your bottom line, delay business, and more.
If you’re launching a new business, you may not realize the issues you’d be taking on by opting for traditional manual accounting. Here are just a few that you can expect:
Traditional Accounting is a Full-Time Job
No matter how small your business is, trying to perform accounting duties on your own is a mistake. When you’re first launching, doing your own bookkeeping can seem easy. You have a set budget or your own personal funds. As you make purchases, put a downpayment on a storefront, and buy inventory, you subtract.
But are you also packing away your receipts and calculating tax deductions? If the answer is no, you may already be in trouble.
Traditional accounting is a full-time job. Professional accountants spend years studying the industry and have the degrees to show it. Trying to learn what it takes to manage a business’ accounts while running the day-to-day will get overwhelming once the sales start rolling in.
If you’re not overwhelmed at first, you will be when tax time comes around. This can lead you to miss deadlines or important deductions or requirements.
Hiring an In-House Accountant Will Drain Your Budget
If you think the solution to the problems outlined above is to rush out and hire a professional accountant, think again. Unless your business is already pulling in huge profits, a full-time, in-house accountant likely isn’t in your budget.
The average yearly salary of a full-time accountant is more than $70,000. Hiring part-time or outsourcing to a firm will save you some money. But it may not give you access to the financial services your business needs to grow and succeed.
Making room in your budget for the traditional accounting you need will likely mean cutting back on other areas of your business. Otherwise, you’ll be reducing your profit margin. For a growing small business, this could mean a big cut in pay for the owner and any employees.
Cutting Corners Leads to Mistakes
Is a professional accountant not in your budget? You might be wondering whether you could cut corners to get the job done. This could mean having your employees share accounting duties or hiring an inexperienced accountant. Or you may be thinking of trying to manage your business finances on your own. Any of these options are likely to put you at risk of costly mistakes.
If you’re relying on employees to perform accounting duties without any formal financial training, books could go unbalanced, totals could be miscalculated, or entire expenses could be left out. Come tax time, this could put you at risk of trouble with the IRS. Every year, businesses in the U.S. are hit with more than $7 billion in IRS penalties.
Even seemingly small mistakes can add up to big trouble, especially if they aren’t caught right away.
Lack of Security
Keeping your records in paper ledgers or even basic computer programs could be putting your company at risk. Each year, 43 percent of cyber attacks target small businesses. These attacks put customer, employee, and sensitive business information at risk.
Whether you deal with sensitive information from clients or just names and credit card numbers, one attack could spell the end of your business’ good reputation.
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The Benefits of Automation in Accounting
It is obvious that automated accounting is already advantageous since it is a solution to some of the problems discussed already in this post. Here are some other advantages of accounting automation you may have not thought about or realized yet.
Avoid a Cash Flow Crisis
Mismanaged cash is the #1 killer of small businesses. It’s a result of unhealthy accounting that ultimately prevents you from making the right decisions to grow your business. So cash flow problems are rooted in deficient bookkeeping.
By automating certain accounting tasks, you can quickly get a full picture of your company’s cash flow without the effort of manually sorting through all your transactions. Automating tasks like bill pay and expense transactions allows you to easily see your cash balance, how much you’re spending, where you’re spending the most, and when cash is scheduled to enter or leave your accounts. This visibility empowers you to make smart business decisions on the spot.
It is Big on Saving Time
There is no surprise here. Accounting automation makes entering credit, debit, client, and other financial data quick and easy.
Traditionally, you’d have to use different books and then try to interpret how different pieces of information link to one another. However, automated processes in most systems will allow one to enter the transaction in only one field. The software will then perform the duty of processing the information and relating it to all other pertinent records in the system. It performs these roles with minimal error. It generates an appropriately structured report, posting with the correct date and time stamps that contain all relevant entries and related data.
Efficient software and cloud accounting automate most of the transactions and can eliminate data entry completely. The future of artificial intelligence and such systems could save accountants the trouble of even data configuration.
The Systems are Adaptable
Quality accounting automation software is often flexible enough to suit the requirements of your business. Besides the standard formats which they use as a reference point, they have a variety of templates to suit your business’ ledgers. They customize features and can produce reports tailored to one’s specificity.
When purchasing software, be careful to note the features that suit your industry so as to get what you would like from a particular package.
Integration of Financial Institution and Payment
Another advantage that comes with automated bookkeeping software is that one can link it to the bank, Fintechs, and other decentralized methods of payment or financial institutions.
The software normally has a built-in interface that allows the client to make and the vendor to receive payment. It then automatically reconciles this information with appropriate accounts as are in the accounting books.
Organization and Storage
Computerized and cloud software enables the company’s financial department in its organization. Accuracy in the entry, processing, and storage of the data makes it significantly easier to know where to find certain information. Storage is a crucial part of the process.
Accounting automation assures the storage of once entered data indefinitely into the system.
Regular, automatic backups and part and parcel of the package prevent loss of crucial information. Updated archiving makes retrieval straightforward.
Proper Analytics and Reports
Besides easing organization and quickening calculations, automation allows for easy presentation and distribution of accurate financial information. The reports are made available to anyone who may need them both internally and externally. It simplifies the performance of audits and records reconciliation.
Moreover, it provides a more accurate analysis of trends, identification of variances and predictability. Accountants can, therefore, perform their jobs with less effort, more precision and make faster financial decisions because they have better access to clear financial reports and information.
Accounting automation comes with encryption and highly advanced security features. The systems guarantee the maximum protection of your data and records. If you choose the right software provider, your automated system will feature advanced safety measures that will help protect you from cyber attacks.
You’ll also have more control over who within your business or office has access to your financial information. No more risk of employees sneaking a peek at the books when they aren’t authorized to do so.
Your Books are Always Ready for Tax Time
If you’ve ever struggled to catch up with your record-keeping at tax time, or if you’ve ever relied on a contracted accountant who was busy preparing dozens of other accounts, you know how stressful that April deadline can be. Scrambling to track down expense sheets, receipts, and trying to figure out what you can deduct at the last minute is likely to lead to mistakes.
Automated bookkeeping eliminates this mad rush to the finish line.
Automated bookkeeping is updated as your business operates. With real-time accounting taking place every second you’re in operation, you never have to worry about putting in information after transactions have happened. Your automated bookkeeping system will also help you figure out what is deductible and what isn’t, giving you an idea of what you’ll owe on an expense come tax time, as soon as the transaction is entered.
Automation makes it easy to ensure that your business is always in compliance with government tax regulations.
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Other Changes to Expect with Automated Accounting
Automating the accounting process will bring about a new set of changes to the accounting world. These changes will help streamline the job so it can be as effective and efficient as possible.
Here are a couple of the other changes you can expect when you start automating accounting.
Outsourced Accounting Can Reach More Customers
Because the routine parts of the accounting job will be faster and easier, outsourced accounting companies will be able to reach more clients without upgrading their staff. That, in turn, means more businesses can have access to quality accounting services.
A practice that uses manual methods can run well, but it can’t compare to the efficiency of automation.
Value-Based Pricing Will Become the Industry Standard
Automation reduces the time it takes to finish work for a client, which makes it difficult to charge hourly. Instead, practices are switching to value-based pricing methods. This is a good thing.
Hourly pay doesn’t encourage productivity, innovation, or efficiency. It also caps your potential income. You can only work a certain number of hours a year. At some point, it becomes impossible to earn any more money than you’re already making.
With value-based pricing, you’re paid for the results you provide, not the amount of time you spent working. You also don’t have to worry about going over the client’s budget or make them worry about any hidden fees.
Value-based pricing is a good thing, and it’ll force accounting practices to get out of their hourly models.
The Best Way to Begin Automating Your Accounting
Automating the accounting process is a great opportunity for businesses to embrace long-term benefits. But the switch can also seem daunting.
If you’re ready to get into the automated world, take a look at these three starting points.
1. Accounts Payable Process and Accounts Receivable
There’s a wide gap between the business on the top and the bottom when it comes to invoicing management. And the efficiency of even this one task plays a big part in the business’s overall productivity.
Here’s a table that outlines the difference:
Every time an invoice shows up in your accounts payable department, you must approve the person who ordered the goods because you pay the invoice. And you want to do this as quickly as possible. When you’re fast, businesses can get early payment discounts, which can save as much as 3% in some cases.
But this is difficult to do with manual processes.
It’s not uncommon for paper invoices to wait for weeks before they’re approved. Sometimes they go missing altogether. When the process is digital and automated, invoices can move through the department in an efficient way. If a problem comes up, accountants will notice them and address them right away.
2. Documenting Audits
There are several problems with manual audit documentation. For example, if an auditor asks to see all the invoices from last year, you’d have to show them a year’s worth of paper documents. Most accounting documents also contain sensitive information you don’t want just anyone to have access to. Should other people look at this data, you’ll want to know who accessed them and when.
For these reasons, audit documentation should be one of the first things you digitize and automate. When it comes to your business, poor record keeping isn’t an option.
3. Purchasing and Procurement
This process involves translating business requirements into supplier requirements, ordering the services and supplies needed to run the business, and managing relationships with the suppliers.
This takes a lot of documentation, so getting it all on the computer will make it efficient and organized.
Imagine how these tasks would be made simpler with automation:
- Requesting quotation documents, approval documents, and inspection sheets
- Manufacturing documents, bills of lading, proof of delivery, freight bills, supplier data, invoices and anything else that’s required for your business needs
- Forecasting regulatory information, sheets, product research documents, and supplier information
- Documenting inspection reports, testing reports, defect reports, defect resolution workflows and materials data supplier quality data
- Working on orders, purchase orders, correspondence with a supplier, contracts, and estimates.
All of these processes require a lot of documentation, paperwork, and systems. Automating these processes will eliminate paperwork and allow you to manage these tasks efficiently and effectively.
Accounting Software is The Future
There are still activities that overwhelm the financial team, even with such advancements in technology. However, with automation, the future is bright. Innovations in smart billing, auto-reconciliation, and management of monetary applications, among other areas continue to improve day-by-day.
There is already a variety of quality accounting software on the market today. Let your financial team become better business advisors, strategic planners, and information custodians. Empower and train them on how to use accounting automation to ease and enhance the quality of their work.
This change is inevitable. With all these advantages, any business is sure to benefit from accounting automation.
For more advice on all things finances and accounting and strategies through which to make enhance business, reach out to us. Our accounting software experts will gladly walk you through how ScaleFactor could improve upon your business’ financial processes.