Have you ever heard of AI? It’s a technology used to replace data entry and other tedious functions in bookkeeping automation. If you have many transactions to track, consistency is essential. Unfortunately, it’s the type of work people often dislike the most.
This guide explains, step by step, how to automate bookkeeping and how it can save more than 10 hours a month.
How to Automate Bookkeeping ( Necessary Tools )
As with any other process optimisation, bookkeeping automation also depends on the selection of the specific technology stack. “To start with the bare bones,” Sarah says, “what you need is an accounting software that integrates with your bank, collects receipts, and produces reports on automation. From there, the rest is integrating tools that mesh nicely.”
Improve your bookkeeping with the following automation tools:
1. Cloud accounting software
Initiate with comprehensive accounting programs like QuickBooks, Xero, or FreshBooks as your base. This software can automate invoicing, tracking expenses, and real-time reporting.
“There is a reason QuickBooks is the industry standard,” Sarah adds,” it integrates with just about every other tool you might use for your business, be it in payment processing, or in systems that manage your inventory. Xero is a good choice as well, though it has a somewhat cleaner interface that some users prefer. “
For businesses providing services, FreshBooks is great for invoicing and time tracking. The three platforms also have apps for managing your finances while on the go.
2. Tools for receipts capture and management
You can forget about the shoebox of paper receipts with apps like Expensify, Receipt Bank (currently Dext), or Shoeboxed. These systems allow for photographing receipts and automatically extracting the vendor’s name, amount, and date.
“Good receipt apps integrate straight with your accounting software”, Sarah points out.
“Expensify is also able to send expenses directly to QuickBooks or Xero, where they can also be automatically reconciled to a bank transaction. This eliminates any double entry.”
“A lot of other accounting software also has integrated receipt scanning, but with some of the other stand-alone tools, you can get better OCR, and more flexibility in your rules for categorisation.”
3. Bank feed integration
“Most of the more recent accounting tools will have the ability to sync with your bank account automatically, and bring in your transactions to their system. This feature – usually called bank feeds – can lower the need for manual entry, and helps keep your records up to date.”
“Make sure you set up bank feeds for every one of your business accounts and credit cards you use.” Says Sarah. “It takes about 10 minutes to set up each account, but it seriously saves hours every week after that.”
Most of the time, bank feeds sync once a day or even in real time and can give you up-to-date financial records whenever you need them. The system learns to categorise the same transaction each time so that it can handle recurring expenses for you.
4. Digital document storage systems
Please bypass your old filing cabinets. With Google Drive, Dropbox, or any document management tool, you can use a cloud-based storage solution. Place digital copies of every receipt, invoice, contract, and other financial documents you have into a single, organised, and easily retrievable system.
“Cloud storage gives you an audit trail and the ability to recover from disasters,” Says Sarah. “Imagine if the IRS decides to review your tax return from 3 years ago. You can pull that receipt in seconds. If there’s a flood in the office, your financial records will still be intact.”
5. Payroll automation platforms
If you have employees, automating payroll with systems like Gusto, ADP, or Paycheck can save hours every pay period. These systems automate payroll tax filing, paychecks, wage calculation, and even tax withholding.
“Payroll is one of those outcomes that can be costly due to mistakes,” Says Sarah.
Systematic payroll software guarantees accuracy and compliance with tax obligations and recordkeeping throughout the year for end-of-year reporting.
Most payroll software works in tandem with accounting programs and automatically posts payroll expenses to the appropriate accounts, eliminating the need for a manual journal entry.
6. Expense management and card programs
Business credit cards offered by American Express, Brex, or Ramp include expense management tools. These tools automatically sort transactions, create expense reports, and sync to accounting software.
“Contemporary business cards have functions that do more than just expense management and tracking,” said Sarah. “They can enforce spending rules, require receipts before a transaction can be finalised, and offer expense visibility.”
Ramp and Brex are examples that offer spending analytics and cashback incentives, which can help identify new spending efficiencies.
8 strategies for effective bookkeeping automation
In addition to selecting the best tools for the job, guidance policies must be put in place to ensure the automation is both time- and cost-efficient.
1. Completely separate your personal and business finances
Have dedicated business bank accounts and credit cards for business transactions. This practice is one of the most impactful and automation-friendly strategies available.
“Attempting to separate personal and business expenses from a single account is a futile exercise, and completely negates the point of automation,” Sarah explains.
The time saved by automation is lost when you have to sort out which transactions are business-related.
2. Establishing and adhering to routines
Sarah says that “Consistency helps avoid a pile up of transactions.” If you automate your bookkeeping on Friday and set a time to do a quick catch-up at the end of the week, you’ll catch minor problems early. If the issues are ignored until the end of the month, you will have to spend countless hours finding issues that have been piling up for weeks.”
Routine tasks need automation too. Set a time to review accounts receivable, follow up on overdue invoices, and review your cash flow position.
3. Set up detailed categorisation rules in advance
Spend a bit of time setting up rules to categorise your transactions. Transaction categorisation is a feature most accounting software offers to make your transactions more straightforward to manage.
Sarah says, “The setup may take a while, but after that, you can do less and less manual work.” For service providers you pay regularly, subscription services, everyday expenses, and frequent sources of income, create categorisation rules.
It is best practice to review the categorisation rules for a few months each month, but this will become a quarterly practice as time goes on and the categorisation systems become less inaccurate.
4. Automating recurring expenses
Rent, Software subscriptions, and insurance payments are expenses that will hit your account each month, so you should categorise and reconcile them automatically.
Most accounting systems can identify patterns, enabling them to pass documents while continuing the process without manual checks.
“Recurring transactions should be fire and forget. Set them up, check that they are functioning as expected for a month or two, then set them on autopilot.”
The same concept also applies to subscription-based recurring invoices for clients.
5. Implementing regular reconciliation schedules
Do not wait until the end of the month to reconcile your accounts. Automated systems make this really simple and fast. Reconciliation regularly helps you identify discrepancies early, rather than waiting until they become a larger issue.
“Your time to complete a reconciliation has ended up being a couple of minutes daily when it’s automated,” Sarah mentions. “You’re just confirming that the system did the matching at a granular enough level. If you let it slide a month or two, I’m sure you already know that it becomes a complicated hunt for discrepancies, and it takes a long time.”
Make automatic reconciliation reminders part of your accounting software and routine, so they are not up for discussion.
6. Monitor and optimise your automation over time
Continuously track your monthly time spent on bookkeeping and identify any remaining manual processes that could be automated. Your automation requirements will continue to change as your business grows.
“Do not let it slide more than a quarter for your automations,” Sarah suggests.
Most accounting systems regularly add new functionality and integrations. If you keep your systems up to date, you will get the most value from your investments.
7. Maintain proper documentation standards
While some processes can be automated, it is still necessary to keep proper records of any unusual or non-standard transactions. If you have any transactions with extraordinary expenses, for instance, a memo can be added to the journal entries, and the reasoning for a specific categorisation can be documented and kept on file.
Sarah states, “Good notes, good notes. Your future self will be grateful for the notes you leave. If your accountant comes to you and asks why this particular expense happened six months ago, you’ll have the context on it right away rather than having to remember what it was for and go dig it up.”
You can keep a record of documents that are supporting notes as well as transactions, and many platforms have a functionality that allows you to do this.
8. Plan for tax compliance throughout the year
Please set up your automation to track tax-deductible expenses separately and allocate funds for estimated tax payments. Use tags for specific categories or classes so that deductible expenses are easy to identify as they are incurred.
“Don’t wait until tax season to organise for tax purposes,” Sarah states. “Your automation should generate tax-ready reports throughout the year.”
“When your accountant requests a report, you should be able to get it done in minutes.”
Set a schedule with your tax professional for quarterly reviews, so you can ensure your categorisation is correctly aligned with tax obligations, and you can benefit from all the deductions you are entitled to.
Why does automation provide you with a minimum of 10+ hours of time savings every month?
Time savings from automation are not just predictions; they are real, current, and applicable to all businesses, regardless of size.
Think of the time a regular small business spends monthly to complete manual bookkeeping.
- 12-16 hours documenting every transaction and sorting every expense (3-4 hours weekly)
- 2-3 hours reconciling the bank statements
- 2-3 hours searching for receipts and arranging the papers
- 2-4 hours drafting the financial statements for each month
- 1-2 hours working on the invoices and noting the payments made
This totals 19-28 hours a month just on manual bookkeeping tasks that can be eliminated with automation. Even if businesses manage to automate bookkeeping and get it down to 10 hours a month, that’s a win in time savings. Still, many companies report that, even with adequate automation, they end up doing manual bookkeeping for 2-3 hours a month.
Improved precision and fewer mistakes
Data entered manually offers complete freedom to make mistakes, including number swaps, omissions of key entries, and incorrect allocations. Each of these can take more time than necessary to fix their errors.
With automation, it is easier to minimise these mistakes, as manual systems work consistently in following the rules you set up.
“Once Sarah sets up the system expense categories and vendor rules once, the system is consistent, no typos, no missing entries, and no math miscalculations in the reports,” expanded.
Real-time financial visibility
With manual bookkeeping, you’re always working with old info and will always be behind.
“With automation, the info is visible immediately.” You can open your accounting dashboard any time and see your current cash balance, who owes you money, and what expenses have been posted.
Simplified tax preparation
When automated bookkeeping tax season comes, you have organised, structured, and completed reports.
“With automation, there comes a clear audit trail; If the IRS comes after a deduction, you have your receipt, you have your transaction, and you’re good. That is what docs do, and you duct tape audits.”
Reduced mental burden
There is a hidden mental cost to doing manual bookkeeping, and it comes with knowing your books are behind.
Your business suffers in a variety of ways due to the stress caused by unresolved expenses and unreconciled accounts.
“That stress is taken away by automation,” Sarah remarks. “If you do not stress about bookkeeping and have current and accurate financial records, you will have the mental capacity to make strategic decisions rather than just worry about bookkeeping.”
Moving Towards Automation: A Practical Guide to Getting Started
Begin with your bank feeds. Starting with business bank accounts and credit cards, this step eliminates manual data entry.
Get your expenses into basic categories. Set up simple categories that align with your business’s accounting structure: purchased software, travel, and marketing. You can change this structure as you go, but starting with the basic structure lets you move faster.
Have parallel systems. In the first month, with the new systems, you should also be keeping your existing bookkeeping process. Doing this lets you ensure the new system is providing data that is also generated in the existing process, giving you confidence that the system is autopiloting.
Continually adjust to make things easier. Once you get comfortable, you can begin customising your accounts to make your workflows easier.
Schedule regular reviews. Schedule at least 15-20-minute time slots to monitor and check automation and keep it running.
This consistent oversight keeps problems from building up.
How to Automate Bookkeeping (Concluded)
Bookkeeping automation is not about removing all human oversight; rather, it is about eliminating the mundane, repetitive tasks so you can focus on the tasks that actually matter.
Ten hours of time savings and more accurate financial information are among the possible outcomes of using the right tools and adopting the right strategy.
The quickest and most effective businesses automate processes, set up the system once, and let it run on autopilot for mundane, repetitive tasks. Instead of wasting your time on data input, use it to grow your company.