Accounting firm, can you automate your accounting?
Many think that accountants are going to be replaced by automated accounting software, accounting robots or AI accounting system. Well, we know what’s going to happen when you run automated accounting software for bookkeeping.
During a period we have run our production system for our accounting service firm, AXRED Accountants, and our experience is that the process itself can be automated to a high level, but you always need to control the documents and approve ledger posts. Activities that can be accomplished with low brain effort is no problem to automate. The issue is how to automate decisions with several possibly outcomes and there is a need for more details in the data i.e. it’s often not enough with data like date, value, VAT, etc. There is always a need for highly competent accountants.
To begin with accounting automation you need an accounting system with the functionality. There aren’t many alternatives and especially not when you have an accounting firm. So, we built our own system and have it now in production.
Bookkeeping includes a lot of activities and automation has to include every step. In an accounting firm the activities are similar to company’s in-house accounting, but there are differences. First, you need data from the business events, like invoices, so you have to collect them and the accounting firm need deliveries of documents. To automate this step you have to develop functionality.
Next, you have to do a first control – is it or is it not a document for your bookkeeping. If yes, put it for registration. And same here, you have to develop functionality to perform automatic execution. Some kind of sorting is needed and this is the next step before you are in position to register a post based on the document. After registration you create the documentation for the business event and put in a binder. And to obtain automation you have to develop functionality to read data, rules for decisions and register and functions to create documentation. When the period ends you have to reconcile balances and create financial statement, VAT record, etc. In this process phase you need the famous “push the button” functionality.
It’s when you use an automated system you can see where the issues is. There are two activities that are difficult to automate. First the decision about which account to use based upon information from a document. The second activity includes reconciliation of accounts to create quality. In this phase you need your brain and you have to communicate with your customer regarding missing documents and other questions.
Example choose account: A builder company buys a lot of material for building and also a lot of tools. Some of the tools are expensive and have a long life. The supplier of material also sells tools. And there is the issue. An invoice from the vendor can contain building material, small tools and long life expensive tools – three different account to select when you make ledger posts. So if you have an automated process and the system reads the invoice it is almost impossible to automate this kind of invoice to 100%. But, you can do a good guess and give proposal how to register. However, many invoices are easy to automate.
Example regarding reconciliation. How to know that you have received all documents for your accounting? Well, you reconcile your balances and ask questions to your customer. An automated system receives documents and executes - and compare and check a to-do list. Example, bank statement received – check, bank statement done – check, but that not enough. Almost every period some documents are missing and you have to remind the customer.
Even if you use an automated bookkeeping system there are activities that need a lot more of information to automate, but we have seen that you at least can increase the effectiveness with over 100%. Instead of doing the accounts for one customer you can do two customers as quickly as one.