With the advancement of AI and technology automation, it’s become easier to manage the accounting and bookkeeping activities in your small business. However, it’s important to understand that you need to be familiar with how the automation works and what the expected outcomes are.
Understanding How Automation Works
Whether it’s scanning receipts to pull key information to post to your accounting system, or automatically creating an invoice after a new customer agreement is signed, there are systems that can perform accounting tasks automatically that reduce the work needed to be completed by a person.
First – systems must be setup to work with automation. Setup will be different depending on what systems you’re integrating. Often this includes:
- Setting up the integration between the source system to the accounting/general ledger system (for example, bank feeds, CRM integrations, reporting modules).
- Mapping key fields from input/source documents or systems to the appropriate fields, accounts, classes, divisions, or other categories.
- Setting up processes on how to use the automated systems.
Next – processes and systems must be setup for reviewing outcomes.
- Review for exceptions. Set thresholds for certain accounts or transactions to review if they get out of whack.
- Look for outliers. Review detailed activity weekly and look for things that are out of place.
- Review for reasonableness. If you don’t think you should have $50,000 in sales for one week, then it’s likely that something is wrong. Dig deeper to understand why.
One of the most common accounting systems used for small business is QuickBooks Online. QuickBooks Online allows you to connect your bank to QuickBooks to automatically post transactions. The transactions come in from the bank and are included in a queue for review. You either match the transaction to something you’ve already posted (for example a customer payment that was made or a bill you paid). Or, you add the transaction.
This can be helpful and save time, however, it can also cause significant issues if you do not use it right. Some of those issues are
1. You could duplicate transactions. If you received a payment from a customer in your QuickBooks file and deposited it to the bank, but QuickBooks did not recognize it as the same transaction when it came in, you may add revenue as another deposit as well as the payment applied from your customer.
2. You could post transactions to the wrong accounts. QuickBooks guesses where the expense should go based on the vendor. For example, Wal-Mart may usually get recorded to Office Supplies, but if you purchase materials to make your product from Wal-Mart, then for you, this expense should be recorded to Inventory or Cost of Goods Sold.
3. You may not get vendor names added to charges that come through or you may end up with 3 different vendors in QuickBooks for the same vendor. When QuickBooks brings in expense transactions, it either leaves the vendor blank or adds the vendor based on the information provided in the bank feed. This might mean MSFT*1238ds7 is created as a vendor, when really the vendor is Microsoft. If the vendor changes their electronic reporting information for payments, then the next time you see that charge, it may come through as Micro-8593* and yet another vendor is created. This can cause a significant issue when you’re trying to analyze how much you spend with one particular vendor, or when you’re trying to find specific payments and expenses.
4. You might match transactions to the wrong transaction. If you have pretty standard sales amounts – for example, you charge $500 per month for a specific service, then you’re going to get a lot of $500 transactions coming through the bank. You may inadvertently match one $500 transaction to the wrong customer and then you think customer A has paid, but really it was customer B. If this goes on for multiple months, it can be really hard to untangle the mess.
These potential issues can have a huge impact on your business. Here are some specific examples of the impact that automated accounting has had on businesses we’ve worked with.
1. A company had overreported their income by more than $250,000 over 3 years. They had their bank feed synced to their QuickBooks file and the deposits coming in had not been matching up correctly with the customer payments already posted to QuickBooks. Each time this happened, the revenue was duplicated. After discovering this issue and cleaning up the books, the company filed amended tax returns and recovered over $60,000 in overpaid taxes.
2. One company duplicated vendor payments by more than $100,000. They were paying their vendor on a credit card, but not posting the payment to QuickBooks against the bill. When the credit card feed came in, they posted these transactions as expenses. However, because they had not been posting the payments against the bills in QuickBooks, they then also thought those bills were still outstanding and then processed payments on those bills as well. Over just a short 6-month period, over $100,000 was made in duplicate payments. While these amounts were able to be recovered by applying them to future expenses, the company’s cash flow was negatively impacted during that period of time, and it took over 30 hours of reconciliation to figure out what was truly owed to each vendor.
3. One business thought they had lost over $180,000 over their first year of business due to incorrect posting of transactions coming in from the bank feed. Transactions were duplicated and transactions were not recorded appropriately (going to expenses vs. balance sheet accounts). After cleaning up all the issues created by the automation, it was determined that they had actually made $30,000. The owner had no idea how his business was doing and couldn’t make decisions because his financial information was so inaccurate.
AI is intelligent, QuickBooks is smart, but every business is different. It’s important to understand how to best use automation in your accounting so that it saves you time and streamlines your operations, without causing issues that are going to negatively impact your financial performance and cash flow.
Written By: Shauna Huntington