“The death of monthly accounting,” as Andrew Hoag, CEO of Teampay, calls it, “has long been overdue.”
Monthly bookkeeping has been the old standby, but it doesn’t support any business—from small business to startup to enterprise-level—the way they need. Instead, companies are turning to automated bookkeeping.
Below, we’ll cover why startups and enterprises are moving away from monthly bookkeeping and how they’re instead embracing automations and real-time visibility through digital tools. As a small business owner, follow their lead and complete your books like the big-time players.
1. Monthly bookkeeping is inefficient.
Monthly bookkeeping is extremely time-consuming—from tracking down receipts and other financial documents to creating a chart of accounts and matching journal entries. This process takes significant time to organize at the end of the month.
Similar to your business (except on a larger scale), finance teams at startups and enterprises are responsible for juggling multiple key accounts and reconciling thousands of journal entries every month.
The month-end close process (reviewing, recording, and reconciling information) takes days for a startup or enterprise to complete—longer, if finance teams are performing tasks manually, such as inserting data into a spreadsheet. According to Ventana Research, companies that use spreadsheets extensively throughout the close process take an average of 8.2 days to close their books.
Your small business is subject to the same problems if you’re manually sorting through paper documents like receipts and completing the traditional eight-step accounting cycle at the end of every month. In short, this type of bookkeeping is inefficient for ANY sized business.
Startups and enterprises are turning to single, automated systems that organize all financial processes and data in one place. They can automatically keep track of everything through the month, and then have financial info ready to go when it’s time to close the books.
The results are telling. According to the same survey by Ventana Research, companies that automate the majority of month-end close tasks, using spreadsheets only for complex work, can close their books in 6.2 days.
As a nimble small business, you can complete bookkeeping tasks even faster by taking advantage of automated platforms. With systems like Neat, you can easily upload financial documents in one click on your mobile phone and automatically match transactions in one location. Bookkeeping tasks can be completed anytime, anywhere—not just at the end of the month.
2. Monthly bookkeeping costs money.
The inefficiencies of monthly bookkeeping end up draining valuable dollars. Instead of focusing on strategic activities, employees spend their valuable time completing bookkeeping tasks.
For large companies, inefficient processes can cost anywhere from 20% to 30% of their revenue every year, according to research firm IDC. For small businesses, monthly bookkeeping can amount to $1,694 being allocated to manual work each year.
Why is the process so costly? On top of the inefficiency of manual labor, monthly bookkeeping is inherently flawed because of the unnecessary number of steps involved. With traditional monthly bookkeeping, you’re required to follow an eight-step accounting cycle:
- Step 1: Identify transactions
- Step 2: Record transactions in journal
- Step 3: Post to accounts in the general ledger
- Step 4: Calculate unadjusted trial balance
- Step 5: Create a worksheet
- Step 6: Adjust journal entries
- Step 7: Create financial statements
- Step 8: Close the books
Once you’ve closed your books at the end of the month (the typical accounting cycle), you have to start the process all over again. For any sized company, spending significant time on each of these steps wastes valuable employee time, which wastes valuable company dollars.
Startups and enterprises are moving to eliminate inefficiencies and steps from the traditional accounting/bookkeeping process. Rather than following an eight-step accounting cycle, these companies use software that does away with things like matching journal entries.
Neat’s system for small businesses also removes frustrating, unnecessary bookkeeping steps and makes the process easy for small business owners.
Instead of following an eight-step process, small businesses can complete bookkeeping in only three steps—they simply have to ensure that transactions are recorded and legitimate, categorized correctly and automatically, and have the right financial document attached. These steps can be completed as transactions occur throughout the month.
3. Monthly bookkeeping isn’t responsive.
Monthly bookkeeping is completed at the end of each month—which means you can overlook key insights on how much money you had coming in and how much money you had going out. This gap can affect the health of your business.
Think about it. You might have a general idea of how much you’re spending, but you have to piece together a story based on your receipts to truly understand expenses at the end of the month. You also don’t know if you’re going over budget until it’s too late.
Startups and enterprises have struggled with the same problem. According to one survey of more than 500 CFOs, over 60% said they lacked total visibility into company spend.
This absence of visibility isn’t ideal in the current economic environment—for any business. According to Hoag at Teampay, “Businesses in this fragile environment need a tight handle on cash flow and the ability to cut costs wherever possible. We saw this urgency reflected in March as companies began to prioritize finance as a more critical service area: Our data showed a 75% increase in business spending on accounting services compared to February.”
But, as Hoag explains, finance and accounting teams realized the end of the month (and even week) was too late to see things like what employees were purchasing and how much they were spending. These teams couldn’t react to spending in the moment due to following the monthly bookkeeping/accounting process.
Startups and enterprises are ensuring that their accounting/bookkeeping is proactive, rather than reactive, with tools that offer dashboards with views of transaction data throughout the month.
Whether it’s employee spending or revenue coming in, automated software with dashboards offers the insights needed to ensure that companies stay on top of their financials.
With your small business, view daily, weekly, and monthly transactions within a clean insights dashboard (like the one we have at Neat). You can check your cash flow as often as you like—instead of at the end of the month. This allows you to course-correct if you’re off budget or determine if you need to allocate your money to different categories.
Complete bookkeeping tasks daily
Monthly bookkeeping might be traditional, but that doesn’t mean it’s the most effective route to manage your books. Take it from startups and enterprises: The process is due for an overhaul.
Regular bookkeeping that’s supported by automation and digital tools means that you’re on top of your company’s cash flow 24/7. Expense data never becomes stale because you’re interacting with it every day. Your business’s health is the ultimate winner.
At Neat, we’re strong believers in simple, automated bookkeeping. Check out our software that helps you take care of bookkeeping and get a complete picture of your business’s financial health in just a handful of minutes per month.