Most perceive “automation in accounting” as “automated software,” but in reality, automation-driven accounting software actually helps accountants automate all of their processes.
Accounting is a combination of work you do as a human being and the work the software does (storage, defined algorithms validating data and performing defined computations, and so on).
Let us say at your practice the current human-to-machine ratio is 3:1 (the time taken by humans to perform a process from start to end – to the time taken by the software to perform it’s part in that process). Moreover, 75 percent of your particular process involves manual work and the software does 25 percent of it.
What automation does is that it keeps moving this ratio more and more from humans to the software. Let us say it becomes 2:1, so 66 percent by humans and 33 percent by the software. Automation, in effect, identifies the work only humans can do, and that, in essence, is the work you should be doing in any case.
Humans Should Do the Work That Only Humans Can Do
The real impact of automation is life-liberating. As a child, when you were asked, “What will you be when you grow up?” I am sure that you did not reply, “I will take data from A and put it into B.” Unfortunately, accounting software made you do exactly that, until now that is. But automation is making things different now.
Let us take an example: Write-up work is one of the services provided by a majority of accounting firms. It used to be (and still is for many firms) one of the most manual processes at any accounting firm. Automation started changing that. It is interesting to take a quick snapshot of the progress of automation in the write-up work.
- Clients delivered paper-based bank statements to accountants, by mail or in person; it’s an all-manual effort.
- If accountants did not receive paper documents, they would call the clients and ask for them, often multiple times. Again, an all-manual effort.
- Then came the fax and eventually email technologies. Accountants call and email clients to remind them to send necessary documents. But this reminding is still an all-manual effort; only the delivery is aided by technology.
- Once accountants received the statements, either paper or scanned images, they would enter data off the statements into the accounting software. Once again, an all-manual effort.
- Then accountants would “reconcile” the accounting data with statements ... you guessed it, all manually.
- Then came the bank feeds. Accounting software started pulling in the transactions data from bank systems. Gone was part of the manual effort of entering data off statements into accounting software. But the classification of transactions and correcting the “transcription errors” was (and is) still a manual process.
- And when the vendor or payee is not already in the accounting database, accountants still need to manually follow up with clients, by phone and email, to obtain check images and clarifications.
Now, automation technologies are more advanced. They bring in not only the bank transactions, but also the check images and bank statement PDFs. Gone are the manual efforts to follow up with clients to obtain this information. The only manual effort is to code the transactions to correct accounts and to seek clarification if the payee is an individual (as most businesses’ info can be Googled to identify type of expense).
Even bank feed automation is getting smarter. It remembers which vendor/payee transaction was classified to which account, and the next time accounting software imports the bank transactions, transactions get automatically coded to the correct account.
What remains manual is to classify NEW vendor and payee transactions, and to quickly review if you need to re-classify any transactions. The automated software does most of the work; very less manual work.
That’s not the end. Technologies are getting smarter. Artificial intelligence and machine learning, combined with the ability cloud gives, can (and will) generate accurate, crowd-sourced intelligence to code the transactions to the correct account.
For example, if several other businesses and accountants have a coded transaction for a particular vendor to a particular account, the software will suggest the account to use – and it will be based on the type of business. And with secure digital checks, the accounting software can email out several digital checks in just one click, with no need to print or mail checks at all.
All that you need is vendors’/payees’ email addresses; very less manual work.
Use this formula: In the points mentioned above, wherever you see the words “manual work,” think of it as “time and cost and loss of profit.” Manual Work = Time, Cost, Loss of Profit
Several research studies prove that humans are more driven by loss aversion than by gains.
So instead of having a “growth target,” reframe it as a “loss reduction target.” Instead of saying, “We will grow our revenue by 20 percent this year,” say, “We are losing 20 percent of revenue to our manual process inefficiencies” (which, in fact, is a fact if you are not embracing and leveraging automation).
The real impact: Life-liberating. The sheer productivity growth will mean that your firm can service far more number of clients without adding any more overhead and staff.
More and more of your staff will use their knowledge and experience, rather than just using their hands and fingers. It will give them more job satisfaction because they will get an increasing sense of meaningful contribution to your firm’s success, as well as that of your clients.
And yes, the “profitability” will increase to levels you never thought was possible. With automation, you can make much more, if you choose to automate your “processes.”