Banish manual data entry to cure tax season stress
Taking a break from the dramas of the January 2021 busy season, John Stokdyk applies some key automation principles to common tax and accounting processes.
Automated systems can complete repetitive tasks more quickly and accurately than humans, allowing businesses to do more and better work without having to hire more people.
As detailed in our Sage automation roadmap article, pinch points and blockages in your existing processes are a great place to start. After the stresses of 2020-21, many accountancy firms will be acutely aware of where things are hurting.
Carrying out a simple systems analysis will point you in the right direction by identifying the actions that need to happen when work piles up. Who does the work and where should it go next? What mechanisms are used to record when work is done – and will they feed into the billing workflow?
The personal tax workflow
The January tax season often brings process issues to a head. The most common blockages arise from a lack of bookkeeping capacity when clients turn up at the last minute with their books and records.
More often than not, the work has backed up because people are spending a lot of time reworking records or re-keying accounts data by hand. According to Sage, during the January 2019 busy season 9m hours were spent on manual data entry.
Instead of attempting to reconstruct a set of accounts from incomplete records, imagine what self assessment would look like if the figures you needed to compile a tax return were there when you needed them.
Automated software can reduce some of that friction. The systems analysis process goes back to the key information sources: the client’s business transactions and expenses claims. The sooner you can capture these pieces of data in electronic form, the better things will be for the client’s record-keeping and compliance obligations.
“It’s about having the final accounts and tax online, so there’s an end-to-end workflow incorporating data entry, compliance and business intelligence with accounting in the middle.” Chris Downing, Sage
The real-time data stream
The cloud environment makes it easier to think of accounting as a stream of data that is acted on in different ways. Incoming data needs to be shaped and directed to different outputs ranging from daily sales reports and periodic management accounts to operational forecasts and broader scenario plans – plus the statutory accounts and tax returns (VAT, corporation tax and income tax).
The source information for all these reports is the same and comes from the core accounting engine. People will always be involved in raising and recording transactions, so there is an element of human data entry. But the minute you capture the data in electronic form, it can be fed into the accounting ledgers. This should happen as close as possible to the point of sale - or before if you are also accounting for spending commitments and cashflows.
These are the steps required to automate the front-end bookkeeping process:
1. Hook up bank feeds
Connect the accounting ledgers to the entity’s bank feeds so that completed transactions are automatically entered and recognised. This is standard practice for cloud accounting.
2. Integrate order processing
Ensure that sales and purchase orders are either raised within the accounts system, or are fed into the relevant ledgers from compatible systems, for example point of sale, CRM or ecommerce software.
3. Capture transactions at source
Set up processes to capture other transaction types such as employee expenses, recurring utility payments or other commitments at source. Cloud data capture and management tools such as AutoEntry and Receipt Bank can “fetch” transactions or convert smartphone images, document scans and emailed invoices into transaction data that feeds into the accounting ledgers. Shifting to more electronic payments, as seen during the pandemic, increases the scope for entering transaction data without human intervention.
4. Validate and reconcile
Rapid reconciliation is the final clearing point for your accounting data flow. Good controls and processes to manage the flow of revenue and cost information will prevent garbage getting into the stream, so all the outputs will come out cleaner and more quickly. Modern software can learn how people categorise transactions from different sources and spot the errors your team corrects to make this process almost hands-free.
There’s still a need for human review, however, to check the assumptions underlying reconciliations and deal with any exceptions that stray from the norm. These checks also present early warning signs that a client might be struggling with their books, losing control on spending in certain areas or falling behind in their collections – all of which could prompt preventative interventions from your team.
Reap the benefits
The Covid crisis accelerated practice automation during 2020. Using data capture applications as a measure, the proportion of accounting software users in AccountingWEB’s annual survey who also used a receipt capture app more than tripled from 12% in 2019 to 45% in 2020.
Those accountants may have saved themselves a couple of million hours of coding paper records into accounting systems in 2020, but several million more hours could be saved during next year’s tax season if everyone did this.
The standardised data flow can be hooked up to reporting tools that output management accounts with a single click. The same technique can feed into debtor management to-do lists and cashflow forecasts, or spit out the trial balances needed for final accounts and tax returns.
These internal efficiencies will get more done within the firm, but can also free up your team to spend more time working with clients to interpret the figures rather than inputting them.
Once clients are playing their part in the data flow, they will start to enjoy the benefits of getting real-time insights into how their business is performing, as Guy Armitage-Norton from Milsted Langdon recently explained: “Clients have been very receptive to the move to cloud and digital, on the whole, especially with MTD driving things.
“Once you talk about the benefits, they get it and then you can take the baby steps of setting up bank feeds and getting automated bookkeeping set up. Within half an hour of looking at the software, clients are up and running and we can throw additional ideas at them, like adding in Chaser to automatically chase up late payments and so on.”
The MTD effect
The Covid crisis shifted automation from an industry buzzword to a working reality for many accountants. As Armitage-Norton mentioned, HMRC will continue to push firms in this direction as they contemplate Making Tax Digital initiatives in the years ahead. MTD for income tax comes into force from April 2023 and MTD for corporation tax will be rolled out in subsequent years.
Accounting practices will not be able to operate profitably unless they eliminate manual data entry – that’s one of the founding principles of the government’s digital tax drive. Starting early will give practices more time to see what works best and drive last minute panics out of their compliance processes. Ultimately that means less stress for you, your clients and your team.
Sage is on a mission to automate data entry and speed up admin for every accounting and bookkeeping practice in the UK. Start streamlining workflows and spend more time helping your clients succeed. Get started today
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