AI is Taking Over Bookkeeping: Here’s What You Need to Know!

June 11, 2023

What you need to know about transitioning your Shopify and Amazon stores to AI bookkeeping

AI is Taking Over Bookkeeping: Here’s What You Need to Know!

With 84% of ecommerce businesses either actively working AI solutions into their business or having it as a top priority, ecommerce is one of the leading adopters of Artificial Intelligence (AI).

Here's what you need to consider when thinking of using AI in your ecommerce accounting.

Can AI do my bookkeeping?

Yes and no. AI and other automation technologies like Machine Learning and Big Data can and should be used to automate and streamline specific tasks in the bookkeeping process.

However, while AI can streamline specific processes and reduce manual effort, it only partially replaces human involvement in bookkeeping. 

The level of automation and reliance on AI in bookkeeping will depend on the complexity of your business, the volume of transactions, and specific accounting needs.

What bookkeeping tasks can be replaced by AI?

1) Expense Categorization

AI algorithms and machine learning can analyze bank and credit card transactions and automatically categorize expenses into a specific account in the chart of accounts you use for your business.

Using AI for this instead of a traditional bookkeeper will save time, and money, and will result in more accurate and consistent categorizations for each of your transactions.

2) Data Entry

AI-powered accounting software can automate data entry by extracting relevant information from specific sources of truth, including sales channels, payment processors, invoices and receipts, reducing the time and effort required for manual data entry.

3) Bank Reconciliation

AI can reconcile bank statements with the actual balance in your bank account by automatically matching transactions and identifying discrepancies.

4) Invoicing and Billing

AI-powered tools can generate invoices and track payment reminders, improving efficiency in the billing process.

5) Data Analysis

AI can analyze financial data, identify trends, and generate insights that help financial reporting, forecasting, and decision-making.

6) Fraud Detection

AI algorithms can detect potential anomalies or irregularities in financial transactions, flagging potential fraud cases or bank errors.

Why ecommerce businesses should switch to a bookkeeper that uses AI

Here's the truth that we've seen across hundreds of different ecommerce brands of all sizes.

It's not easy finding a bookkeeper or accountant who actually gets ecommerce. But, even if you do find a great bookkeeper who really understands ecommerce, it’s not humanly possible for them to keep up with the speed of your brand. Instead, you are constantly waiting at least two weeks after each month to have any financial visibility since the earliest a bookkeeper will close your monthly books will be by the 15th of the following month.

This is where AI, real-time bookkeeping and accounting is a game changer.

To find out exactly what you need to know about transitioning your bookkeeping service to AI, watch this short video that will walk you through why it's important to rethink your current bookkeeping setup.

In the meantime, here's a summary of why traditional bookkeepers are often not the right fit for most ecommerce brands.

1) Most don’t understand ecommerce and DTC

With confusing sales tax laws, high transaction volumes, and complex inventory management and returns issues, ecommerce accounting and bookkeeping are a lot more complicated than bookkeeping for brick & mortar stores. 

While the basic structure of all bookkeeping is generally the same—assets, liabilities, equity, income, and expenses—the breakdown of each category, the specific issues important for you to understand for your business, and the technology needed to properly record all transaction details are dramatically different from your physical store counterparts. 

Having an ecommerce-tailored AI accounting software that is built to understand these differences, will help you get the most value and insights from your financials and prevent major issues down the line.

Read more on why ecommerce bookkeeping so different than other industries in our blog Ecommerce bookkeeping: 6 tips every ecomm business needs to know.

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2)  Inaccurate books

Traditional bookkeepers often rely on manual data entry, which increases the risk of human errors. Mistakes in recording transactions, inventory counts, or financial calculations will lead to inaccurate financial statements and reporting. 

AI accounting software are designed to minimize the risk of errors in financial reporting. AI-powered bookkeeping systems can automate many routine and repetitive tasks, such as data entry, invoice processing, and bank reconciliations. It pulls the data directly from the sources of truth - Shopify, Amazon, Walmart, Stripe, Paypal, Gusto, banks, etc. - at a speed that a human can't compete with.

This not only saves time but also reduces the risk of errors, as AI systems can accurately process large volumes of data much faster than humans. They can flag discrepancies and identify inconsistencies in data, reducing the risk of fraud or other financial irregularities.

3) Consistently delayed books

If you were to ask your bookkeeper for an up-to-date P&L, cashflow, or balance sheet, or even what your current overhead expenses were per day, they wouldn’t be able to tell you. You would have to wait until the month’s books were closed!

Sounds, ridiculous, right? Would you accept this kind of delayed response from any other service provider?

How can you make fast decisions about the future of your business if your bookkeepers can’t give you an accurate overview of your financial situation until the next month?

With AI bookkeeping, you won’t have to worry anymore about receiving delayed books. You can get a live overview of all of your financials—including your P&L, cash flow, and Balance Sheet.

4) They use a generic Chart of Accounts (CoA)

A CoA is the breakdown and structure of your financials. ‍A well-defined CoA improves your ability to monitor and analyze the financial performance of your business through meaningful reports and can directly impact your decision-making process. 

The one-size-fits-all list of accounts does not, in fact, fit all. The standard CoAs, such as the Quickbooks chart of accounts, are not created with today's ecommerce business in mind.

Ecommerce businesses don’t work like traditional businesses and the accounting treatment and CoA breakdown should not be the same. Don’t underestimate the importance of setting up your books based on ecommerce best practices. 

Read our blog on Setting up your ecommerce chart of accounts for success 

5) Limited data analysis and insights

Traditional bookkeepers don’t possess the same level of data analysis skills as AI bookkeepers. Analyzing and extracting valuable insights from financial data is crucial for optimizing your business operations and identifying growth opportunities in the ecommerce industry.

AI systems can help your ecommerce businesses gain deeper insights into your financial data. They can analyze patterns and trends in sales, expenses, and other financial metrics, providing valuable insights. 

6) Limited scalability

As your ecommerce business grows, your accounting needs will become more complex.

Traditional bookkeeping methods struggle to handle the increased volume of transactions and the need for real-time financial information. Scaling up traditional bookkeeping processes can be challenging and may lead to inefficiencies.

An AI-focused bookkeeper can easily scale up or down to handle changes in the volume of transactions, making them ideal for your ecommerce business when you experience fluctuations in sales volume.

7) Zero visibility into your cash flow

With no real-time numbers, you'll have no true concept of your cash flow. By the time you realize there's an issue on the cash flow side, you'll be forced to make decisions that you know are not great for the business. For example, taking out an ecommerce loan with a very high interest rate.

8) Wasting money

Many brands are spending a tremendous amount on bookkeeping for numbers they can’t trust.

Smaller brands often spend up to $300 a month and we’ve seen larger brands pay up to $5,000 a month. Another, but equally problematic, setup is when brands spend less money but spend more of their own time investing in those numbers to get accurate numbers. The cost-benefit analysis doesn’t make sense and often doesn't work. 

What does transitioning to an AI bookkeeping service look like?

  • No more data collection
  • Full visibility so you know your sales, merchant fees, cost of goods sold (COGS) and marketing expenses
  • Real-time numbers so you can make relevant and better decisions for your business
  • You can either use the data yourself or send it over to your fractional CFO or CPA to help you make more strategic decisions and make better projections
  • No more spending so much money on correcting inaccurate bookkeeping 

Is there AI accounting software?

There are accounting software options that have begun to introduce aspect of AI to improve their technology. These AI accounting software solutions aim to streamline accounting workflows, reduce manual effort, improve accuracy, and provide real-time insights into financial data. They can automate tasks like data entry, expense categorization, invoice processing, and financial analysis. 

Currently, the only real-time AI accounting software for ecommerce, and specifically for brands selling on Shopify, Amazon, Walmart, and other online sales platforms, is Finaloop which combines AI & Machine Learning technology with human accounting and ecommerce experts, to replace ecommerce and DTC accounting software, app integrations, and your bookkeeper.

Is it enough to use a bookkeeping software like QuickBooks Online (QBO), Xero, or NetSuite?

The short answer is no.

The long answer is noooooooooo.

Many ecommerce owners and bookkeepers take the standard Quickbooks bookkeeping process, add an Intuit ecommerce service or third-party integration, such as OneSaaS or A2X to integrate with their store platforms, point-of-sale systems, fulfillment, and other ecommerce platforms to Quickbooks Commerce and consider this ecommerce bookkeeping.

While bookkeeping software, like QuickBooks Online (QBO), Xero, and others, are tools to manage bookkeeping and accounting, they require a bookkeeper's expertise and time to actually do the bookkeeping  - classify transactions, enter bills, collect invoices, match payments, and reconcile discrepancies. A Tax CPA would also be needed to prepare ongoing and year-end tax filings.

Adding ecommerce integrations to your accounting software is only one piece of the puzzle in making your books ecommerce-friendly but still won't give you the full picture of ecommerce insights and real-time data you need.

Will AI replace CPAs?

While AI technology has the potential to automate specific routine tasks traditionally performed by Certified Public Accountants (CPAs) such as data analysis and providing insights, it's unlikely to completely replace CPAs or CFOs in the near future since it lacks the human qualities and expertise that CPAs bring to the table.

Human oversight is still very important to ensure accuracy, review AI-generated results, and interpret the data for decision-making.

What is for sure is that the combination of AI technology and human accountants can be a powerful collaboration, allowing CPAs to leverage AI tools to enhance their productivity, accuracy, and analytical capabilities. This enables them to focus on higher-level tasks that require professional judgment, critical thinking, and strategic advisory.

TL;DR

So should you use AI and Machine Learning for my ecommerce bookkeeping?

For the overwhelming majority of ecommerce and DTC brands, the answer is yes, you should.

Unless you have a bookkeeping or accounting background, a lot of the important nuances of ecommerce bookkeeping may be lost in your books. So, just like ChatGPT needs a human to review the content it produces, it's important to make sure any bookkeeping solution you choose, has the ecommerce knowledge you need to get the most from your financials.

Only by transitioning to AI bookkeeping can you get accurate and real-time financials to help you plan for how to use your cash and spot opportunities to grow your ecommerce business. 

About Finaloop

 

We are a technology company providing automated end-to-end accounting service to ecommerce businesses. Our system connects to your apps, syncs all your data and reconciles your books in real-time, replacing your bookkeeper, your accounting software, and your ecomm integrations. We offer reconciled books available 24/7, tax-saving insights, and a single place for all your financial data.

 

*The information provided on this website does not, and is not intended to, constitute legal advice. All information, content, and materials available on this site are for general informational purposes only. Readers are advised to consult with their attorney or accountant with any questions or concerns.*

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