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Table of contents
Picture the scene: a shoebox full of receipts, bits of paper everywhere, and you manically trying to find all the info you need to update your records.
Thankfully, it doesn’t have to be this way.
Automated bookkeeping takes the manual work out of managing your business finances, allowing you to focus on what you do best.
In this article, we’ll cover the key features of automated bookkeeping, as well as the potential benefits for small businesses.
Let’s get started.
In simple terms, automated bookkeeping is the use of software to handle routine bookkeeping tasks automatically, or with less manual input.
This is different from traditional bookkeeping, where you basically have to do everything yourself – from entering transactions to categorising income and expenses.
There’s still a human element, though: the software handles much of the tedious aspect of bookkeeping work, while you oversee and manage the parts that require judgment.
Alternatively, if you have a bookkeeper or accountant, they can check everything’s correct and use the records to prepare your accounts and tax returns.
Some of the key features of automated bookkeeping include:
Transactions flow in from your business bank account automatically via open banking which connects your account to your bookkeeping software.
Software suggests or applies categories based on rules and past transactions.
Matching payments to invoices and bills, so your records line up with your bank balance.
Photographing receipts and uploading them to your software so they’re stored digitally and attached to transactions.
Setting up regular invoices and chasing payments automatically.
There are two areas in which automated bookkeeping unquestionably wins major brownie points; time, and accuracy.
The amount of time you spend entering records and checking financial data manually is probably eye-watering, even if you don’t have many transactions going through. It’s just a long-winded process.
Automating that process gives you more time to worry about actually running your business.
It should also help businesses maintain more accurate and organised records overall, because less data entry means fewer opportunities for mistakes. The nasties like duplicated transactions or ones which are missing altogether are much less likely to crop up.
In addition to minimising the risk of human error, automated bookkeeping helps give you an up-to-date view of your cash flow at any time, keeping you in the loop.
With this in mind, it’s easier to collaborate with your accountant or bookkeeper. Everyone is on the same page and knows what’s what. It could probably save a lot of arguments.
Transactions are also recorded throughout the year, which saves your accountant nagging you to get things up to date before every deadline.
Again, while automated bookkeeping is good at handling repetitive tasks, it still lacks human reasoning and expertise.
For example, automation may struggle to deal with complex costs or anomalous transactions that can’t easily be categorised, and in this sense, automated systems still require human oversight to function effectively.
The best approach is a balanced one combining the two: automation takes care of tedious admin, while you and/or your bookkeeper or accountant review the records and make any necessary corrections.
It probably can’t tell you what to have for dinner either, but AI in general should be able to help.
Making Tax Digital (or MTD) is a scheme introduced by HMRC to gradually replace existing processes with digital record keeping, so that tax returns are submitted online throughout the year.
For MTD for Income Tax, eligible sole traders and landlords need to use MTD-compliant software to create and store digital records, send quarterly updates to HMRC, and ultimately submit their tax return.
Automated bookkeeping can help streamline the process by keeping your records updated as you go, reducing the amount of work needed when a quarterly update is due.
One important caveat: automated bookkeeping on its own won’t make you MTD-compliant.
You still need software that meets HMRC’s strict requirements, and you ultimately remain responsible for ensuring your records are accurate and up to date. Though an accountant can of course offer assistance.
Generally speaking, automated bookkeeping is suited to sole traders, freelancers, and limited companies of all sizes looking to reduce the amount of time spent managing their financial records.
It can be particularly useful for businesses that:
Ask yourself how much time you spend on bookkeeping each month, and what you would do with this time if you got it back.
Automated bookkeeping can also benefit growing businesses who want to take on more clients, but without creating a sudden increase in manual bookkeeping work.
Overall, it takes the pressure off and gives business owners more confidence in their numbers.
Once you’ve decided to make the switch to automated bookkeeping, you’ll need to choose software that’s HMRC-recognised for Making Tax Digital, and that connects to your online bank.
You’ll then link your business bank account and set up categorisation rules, and you’re off to the races.
From that point, just build a simple weekly or monthly habit of reviewing your transactions (or getting your accountant to do it for you).
Learn more about using Pandle to simplify your bookkeeping, and figure out what to do with all the time you get back.
A content writer who enjoys writing in a way that’s fun and engaging, while still being informative and useful to everyday people. I also enjoy writing creatively.
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