AI Bookkeeping for Small Businesses [Complete Guide 2024]

Running a small business includes managing various repetitive yet necessary tasks that consume resources, for example, bookkeeping. Managing all the financial tasks, income, and expenses, sending invoices, reconciling bank statements, and staying tax-compliant can be a headache. What if AI could help you automate the task to save time, and money and improve the accuracy of your records? In 2024, it is possible with the help of AI Bookkeeping tools.

This blog entry is your guide to understanding how AI helps small businesses manage and optimize bookkeeping.

Let’s start with what bookkeeping is and why it is an essential task for small businesses.

The Importance of Bookkeeping

What is bookkeeping, and why is it important for small businesses?

Bookkeeping is a systematic and organized approach to tracking the financial transactions of a business. Essentially, bookkeeping involves meticulously recording, categorizing, and organizing a company's financial data. It guarantees accurate and up-to-date records of the monetary activities in the business accounts.

For small businesses, bookkeeping serves crucial functions, contributing to success and compliance with legal requirements. Bookkeeping is not merely a mundane administrative task. It is a strategic tool that enables businesses to succeed because accurate financial records facilitate budgeting, cash flow management, and the ability to make informed business decisions.

Why else is bookkeeping key for small businesses? Small business owners can measure their financial health, track profitability, and identify areas for improvement with insights from well-maintained books. Resources are often limited for small enterprises; therefore, adequate bookkeeping guarantees every dollar contributes to sustainable business growth.

Legal regulations of bookkeeping in the United States, Canada, the United Kingdom, and Australia

Besides helping your business grow, proper bookkeeping is a legal requirement across the globe. Various countries have legal frameworks that require accurate and transparent financial record-keeping. Your business must adhere to these regulations to avoid legal complications and financial penalties.

Here are examples from four diverse jurisdictions:

🇺🇸 Bookkeeping Legal Requirement in the United States:

In the United States, the Internal Revenue Service or IRS provides businesses with legislation for record-keeping. Small businesses must maintain adequate records to support income, deductions, credits, and other items reported on their tax returns. They must be kept for at least 3 years from when you filed your original return or 2 years from when you paid the tax, whichever is later. Proper documentation through bookkeeping helps demonstrate the legitimacy of your US business to tax authorities.

🇨🇦 Bookkeeping Legal Requirement in Canada:

In Canada, the Canada Revenue Agency or CRA states clear guidelines for businesses regarding record-keeping. Small businesses must maintain records substantiating their income and expenses, including receipts, invoices, and bank statements. Compliance with these regulations demonstrates the credibility of your Canadian business with tax authorities.

🇬🇧 Bookkeeping Legal Requirement in the United Kingdom:

In the United Kingdom, the HM Revenue and Customs or HMRC provides the requirements for maintaining financial records. Businesses must keep records for at least six years, including invoices, receipts, and financial statements. Proper bookkeeping of your UK business is a legal requirement to fulfill tax obligations and show financial accountability.

🇦🇺 Australia Bookkeeping Legal Requirement:

In Australia, the Australian Taxation Office or ATO mandates that businesses keep records for at least five years. It includes income and expense records, goods and services tax (GST) documents, and employee papers. You must bookkeep to demonstrate the compliance and financial responsibility of your Australian business.

As you can see, the importance of bookkeeping for small businesses is more than organizational efficiency. It is a legal necessity due to regulatory challenges proposed by governments to ensure proper taxation and business practices.

Now that we have understood why bookkeeping is a necessity, continue reading to understand how the task is currently done today.

How is Bookkeeping Done Today

Traditional bookkeeping methods have served businesses for decades; however, they come with intrinsic challenges and limitations, especially because they include several manual and repetitive tasks.

Currently, the bookkeeping process includes, but is not limited to, the following tasks:

• Gathering and organizing paper documents, for example, receipts, invoices, bills, and bank/credit card statements
• Manually entering transactions from paper documents into accounting software or spreadsheets
• Classifying transactions into appropriate accounts like expenses, revenue, assets, etc.
• Tracking receivables and payables balances in separate ledgers and updating the accounting software
• Reconciling bank and credit card accounts manually each month to match entries with statements
• Adjusting journal entries for things like depreciation, prepayments, accruals, etc.
• Generating and distributing government tax forms to contractors at year-end
• Running monthly, quarterly, and annual financial reports
• Analyzing reports and other financial data for business insights
• Closing books at year-end including prepping for taxes, audits, and new fiscal year
• Maintaining fixed asset registers and calculating depreciation schedules
• Coding and filing paperwork chronologically for easy document look-up

These tasks need to be done daily, monthly, and annually to ensure your business bookkeeping is done properly. The repetitive nature of the tasks causes different problems and challenges as we share below.

What are the problems/challenges of current bookkeeping done today?

Traditional manual bookkeeping that small businesses are carrying out today implies several challenges that result in resource expenses. We have listed some of these problems below:

• Time: Conventionally, bookkeeping involves manually entering financial transactions into archives, spreadsheets, or accounting software. This requires meticulous human work, as each transaction must be documented accurately. Often, small businesses employ bookkeepers, or the owner or entrepreneur invests the time to keep the records.
• Potential human error: Misplacing decimal points or overlooking entries are common mistakes that can significantly impact the accuracy of financial records. Such errors can lead to miscalculations, financial discrepancies, and potential legal issues with the taxation office.
• Reduced analytical capability: Analyzing trends, identifying opportunities, and making data-driven decisions require more advanced tools than conventional bookkeeping provides.
• Limited accessibility to records: In today’s world, businesses operate globally and need real-time access to financial information. Traditional methods impede collaboration and decision-making processes.
• Scaling is a challenge. As businesses grow, the volume and complexity of financial transactions increase. Traditional bookkeeping methods may struggle to keep pace with this growth, leading to inefficiencies, delayed reporting, and increased susceptibility to errors.
• Financial Costs: Traditional bookkeeping costs go beyond hiring personnel. You need to consider the expenses related to the physical storage of paper documents, printing and postage for invoices and receipts, and more. However, outsourcing bookkeeping to an accountant or expert can be a significant expense for your small business. See some examples below.

Cost of bookkeeping in the US, Canada, and the UK

This is how much small businesses spend monthly on hiring bookkeeping services:

The United States: From $100 to $600 monthly

Canada: Between $300 to $700 monthly

United Kingdom: From £150 to £800 monthly

Australia: From AUD 130 to AUD 800 monthly

Note: These are general estimates as costs depend on the region, business needs, and bookkeeper experience.

We know the limitations of traditional bookkeeping are overwhelming. Therefore, in the subsequent section, we will explore the transformative potential of AI in reducing these challenges and optimizing the financial management landscape for small businesses😍

How to Use AI Bookkeeping for Small Businesses

AI helps small businesses optimize essential tasks that consume time and money but keep the company running. Bookkeeping is one of the beneficial processes, and here are five reasons why:

1. Automates data manual tasks: AI bookkeeping automates redundant and time-consuming tasks such as data entry and reconciliation.

2. Accuracy and Error Reduction: AI algorithms minimize common errors in manual data entry. The precision of AI bookkeeping guarantees accurate financial records, reducing the risk of miscalculations and financial discrepancies.

3. Real-time Financial Insights: AI Bookkeeping tools are quickly updated which means you always have a real-time vision of your financial status.

4. Cost Savings: Automated bookkeeping processes with AI reduce the need for hiring manual labor hours, plus it minimizes the potential for costly errors.

5. Improves compliance: AI solutions can be configured with compliance rules to ensure accounting standards and regulations are met, avoiding costly penalties and audits.

These are some of the benefits and solved problems that AI Bookkeeping tools can offer your business. Now, what are some AI Bookkeeping tools and what are their costs, features, and UI? In the next section, we share a summary of 7 tools you can check out.

AI Bookkeeping Tools

There are several AI Bookkeeping tools to help you take care of your small business needs. They offer features such as automated data entry and categorization, bank reconciliation, expense tracking, invoicing, and financial reporting.

These are seven popular AI bookkeeping tools:

Devi AI (Coming soon!)

Devi AI's AI bookkeeping tool is a highly anticipated addition to the impressive lineup of AI tools. It will bring automation and efficiency to your financial record-keeping, making it easier to manage expenses, track income, and maintain financial records. Bookeeping.ai by Devi AI automatically prepares ledger and financial statements for tax filing and business optimization.

Upload a bank statement. That's it!

#1 Automated Bookkeeping

Upload a bank statement that's it. Bookeeping.ai will do everything for you.

#2 Real-Time Accounting & Advice

Connect your bank account for real-time accounting and financial advice to grow your business.

#3 Automate Receipt Collection

We will automatically pull all your receipts and match them with the transaction for 100% audit ready.

#4 Chat with your Books

If you are a CPA or Business owner, chat with your books and find insights and valuable patterns.

Don't miss out! Subscribe to get early access here: https://bookeeping.ai.

Zeni

Price: Starts at $549 per month

The main features include:

• Automated daily accounting and bookkeeping
• Personal dashboard with cash flow visibility
• Investor-ready PDF reports
• AI-powered budgeting and forecasting
• Bank & credit card reconciliations

Accessible by: Web dashboard

Vic AI

Price: Contact for pricing

The main features include:

• Automated accounts payable
• Improved invoice processing productivity
• Real-time insights and benchmarking
• Integrations with ERP systems

Accessible by: Website and app

Docyt

Price: Starts at $299 per month

The main features include:

• End-to-end bookkeeping
• Receipt capture and reimbursements
• Document management
• Basic reporting

Accessible by: Website and app

Truewind

Price: Contact for pricing

The main features include:

• Automated bookkeeping with concierge team
• Real-time financial insights
• Budgeting and forecasting
• Monthly financial reporting

Accessible by: Website portal

We invite you to read about these seven AI Bookkeeping tools in more detail in our blog entry here.

Cost and Time Saved with AI bookkeeping vs Traditional bookkeeping:

The use of AI for automating bookkeeping tasks provides considerable savings in time and money compared to traditional methods. While exact savings will vary by business, we are sharing an estimate in the chart below:

We are taking as a basis that a manual bookkeeper costs around $30 per hour and that an AI Bookkeeping subscription is around $100 monthly. Following this estimation, your small business could save a minimum of 17 hours monthly and $510 with AI Bookkeeping.

This is an incredible way to save resources and automate a repetitive task that is getting in the way of creative solutions.

How to Use AI for Bookkeeping in Your Business

Now that you know how much AI can benefit the bookkeeping processes in your business, you must be super excited to implement it. Here are some starting steps on how to use AI for bookkeeping:

Step #1: Select the right AI tool for you

Identify AI bookkeeping tools aligning with your specific business scale and needs. See our suggestions above.

Step #2: Data Migration and Integration

You might need to migrate existing financial data to the AI Bookkeeping tool effectively.

Step #3: Training and Familiarization

You or the employee in charge of setting up the AI Bookkeeping tool might require some training or time to familiarize yourself with it.

#Step 4: Ready to go! Regular Monitoring and Updates

The tool might automatically offer you reports and monitor the performance of the AI bookkeeping system to keep you updated with your finances. You can now focus on other areas of your small business :)

Bookkeeping is an essential business function that provides financial transparency and ensures legal compliance. AI bookkeeping tools have revolutionized the processes for small enterprises by implementing the automation of repetitive tasks, real-time insights, error reduction, and significant cost savings. So, if financial management is overburdening you, consider implementing one of the various AI bookkeeping tools available, for example, Devi AI Bookkeeping Tool.

With the best AI Bookkeeping tool, you can focus your precious time on business growth, customer relationships, and innovation. The future of small business finance looks bright, efficient, and intelligent.

Get ready to start focusing your time on creativity, business strategy, or enjoying a drink by the beach with AI Bookkeeping.