Rick has been managing his small business accounting using a spreadsheet for the last eight years. He has a fair amount of number crunching to do, but it still seems faster than trying to enter all the data into an accounting system.
Recently Rick’s business has expanded and the spreadsheet is getting unruly. After some prodding from his accountant, Rick finally decided to take a look at a cloud accounting system. In particular, his accountant suggested setting up a cloud-based system that boasts some Artificial Intelligence (AI) to save time and make accounting a breeze.
The buzzword of AI has long been floated in business circles for what seems like forever now, but it has taken a while to reach small businesses. Until certain technologies advance through cost reduction from economies of scale, small businesses as well as everyday people will not see a direct benefit.
At last, AI has made a significant impact in the accounting world by reducing the amount of time a business owner spends on number crunching. Consider hiring a professional to set up your accounting system; the complexities of accounting platforms are a bit overwhelming and having some initial training and professional help will save you a lot of time.
The automation and AI power accessible to small businesses on and off the cloud is impressive. It’s not yet at the seamless integration and execution that will surely come, but current AI can make a meaningful impact. The trickiest part is proper setup and oversight: you need to monitor rather than do the work. So now that AI is empowered on most cloud accounting systems, here are some tips to make it work for you:
Be mindful of categorization rules. Although rules for categorization are not strictly AI, it is the backbone of most cloud accounting systems. It is easy to categorize all transfers to your personal account as “Owner Distributions” but what if one of the transfers was actually for a reimbursement? On the other hand, you likely won’t pay your landlord anything other than rent so save yourself some time and set an accounting rule for it.
Focus on expenses. Small businesses can lump all income into the same category and have few asset or liability transactions. When setting up rules or categorizing transactions, focus on your expense categories. Expenses are the most numerous but also easiest to categorize. Leave the complex transactions for your accountant or bookkeeper.
20 categories or less. Using more than 20 categories will make your reports hard to read. My recommendation is to focus on one to three key performance indicators. The other categories are there just to satisfy the tax woman and she doesn’t want to see 100 categories either. Keep your categories general enough so they encompass all your expenses.
Keep your bank connections live. With a plethora of banks integrating to accounting platforms, there are countless bugs and integration errors. In my experience, most are timely fixed, but your bank connection won’t always magically reconnect. Keep an eye on your banking connections and make sure you refresh or reconnect regularly. If unsuccessful, try again in a few days before putting in a tech support request.
Verify your general ledger. The general ledger is overwhelming to decipher at first. It’s a regurgitation of all the transactions in the accounting system by account and category. Skip the bank and credit card accounts and go directly to the income and expense categories. Having the transactions grouped will let you easily detect any errors.
Check for duplicates. Most accounting systems will let you match a bank transaction to an invoice, bill, or other transaction already entered. This is a wonderful feature that makes reconciliation a breeze. However, keep an eye on duplicate transactions. The easiest way to spot this problem is your bank being off balance. Check the bank register for manually entered transactions that aren’t matched to a bank download.
The world of bookkeeping and accounting has shifted dramatically from simple data entry to system management and maintenance. After the initial setup, Rick is offered a maintenance contract to help him keep his accounting up to date. Unlike the bookkeeping quotes he’s received in the past, the monthly fee is less than what his accountant charges to close his books.
This article originally appeared on Forbes