AI bookkeeping best practices for startups and small businesses

When you’re busy running a startup or small business, it can feel like there’s no time for slow, manual bookkeeping tasks. To increase productivity, improve financial visibility, and keep your bookkeeping workflows running smoothly — especially when you don’t have a full-time accountant in-house — you can leverage AI and automation.

With AI tools now available inside many bookkeeping and accounting solutions, how can you make sure you’re using them effectively? If you want to add value to your business without creating unnecessary risk, you’ve got to understand the ins and outs of how AI bookkeeping works.

In this article, we explore the world of AI bookkeeping for small businesses and show you best practices for implementing this technology within startups. Plus, we debunk common misconceptions about whether AI will eventually replace human bookkeepers and accountants. (Hint: not anytime soon.) By the end, you’ll be ready to implement artificial intelligence in your bookkeeping processes, so you can focus on scaling your business.

AI bookkeeping is the use of artificial intelligence technologies, like machine learning and natural language processing, within bookkeeping tools to enhance processes. Whether automatically categorizing expenses, reconciling transactions, or extracting data from receipts, AI bookkeeping software may help minimize errors, streamline workflows, and increase productivity. 

When exploring AI bookkeeping, you’ll come across a number of related terms, such as “rules-based bookkeeping” and “automated bookkeeping.” While these types of bookkeeping are similar to and overlap with AI bookkeeping, it’s important to note the key differences:

1. Rules-based bookkeeping: Tools that use rules-based bookkeeping follow an if-then logic, where an action is taken based on a specific and defined trigger.
2. Automated bookkeeping: Automated bookkeeping software takes that one step further by carrying out these actions, without relying on human input or permission.
3. AI bookkeeping: AI bookkeeping adds another layer of advancement, with the AI learning, adapting, and making decisions based on data — and further enhancing the bookkeeping tasks. 

As a result, when you automate bookkeeping with AI, your business may experience a number of benefits:

• High level of accuracy
• Always-on monitoring of bookkeeping processes
• Significant time savings
• Fewer repetitive and manual tasks
• Cleaner financial reporting
• Better financial visibility

The best AI bookkeeping software can help you automate a number of repetitive and manual tasks, such as:

• Bank feed sync and transaction categorization: One of the most time-consuming tasks in bookkeeping is manual transaction coding. AI takes care of this with great accuracy.
• Recurring entry auto-identification: When it comes to subscription payments, salaries, and other recurring entries, AI tools detect predictable patterns to keep your books consistent.
• Expense receipt matching: The benefits of AI bookkeeping include scanning receipts, capturing merchant data, and automatically matching receipts to transactions.
• Trend detection: AI-powered bookkeeping for startups goes beyond basic reporting. It can highlight recurring inconsistencies or strange anomalies within your data that may require a second look.
• Financial reporting: Get profit and loss statements, balance sheets, cash flow snapshots, and more with bookkeeping AI automation tools.
• Accounting tool integration: Setting up accounting automations between tools, like Mercury and QuickBooks, is a great way to streamline bookkeeping and accounting workflows.

How do you automate bookkeeping workflows with AI tools, so you can take advantage of the benefits — without opening up your business to risk? Follow these best practices.

Start with a hybrid AI and human model

You don’t need to automate everything all at once. Use a hybrid model where AI handles the volume, and humans provide strategy and judgment. For example, AI could automatically categorize, match, and draft entries, and your team could review, correct misclassifications, and apply accounting context, where necessary. This way, you’ll still benefit from the speed of AI without sacrificing any control.

Establish internal controls

Speaking of control, it’s vital to enforce compliance by creating internal controls for AI tools. For example, you should have an approval workflow for reimbursements and bill payments above a certain threshold. Internal controls keep your cash flow in check and limit any surprise expenses from getting past checkpoints. 

Build workflows around clean data

AI tools require clean data. If your data is full of errors or inconsistencies, your results will be, too. Centralize your financial activity around one system, such as using Mercury for your banking and business credit card. This way, you’ll get consistent transaction metadata, clear category mapping, and easier vendor recognition.

Develop rules intentionally

Bookkeeping automation and AI tools learn which patterns to act on, but you shouldn’t rely on that alone. It’s best to create rules for how to handle common transactions, such as banking fees, monthly subscriptions, contractor platforms, and payroll providers. With rules in place, your tools will know exactly what to do and when to do it, which may eliminate errors and inconsistencies in your books.

Set recurring review checkpoints

Having a review cadence for specific workflows means that issues won’t fall through the cracks. For example, you could conduct a weekly review of uncategorized and flagged items. On a monthly basis, review all of the monthly reports. As a result, you’re more likely to catch anything questionable before it really impacts your financials.

Train the system like it’s an employee

The beauty of AI tools is that they learn from feedback. Be sure to correct errors on a consistent basis so that the system can learn from its mistakes, similar to how you would guide a new employee. Over time, AI tools will make fewer and fewer errors because you’ll have trained it based on your business requirements.

Choose tools that integrate natively

When your systems don’t connect properly, it can be easy to lose trust in the numbers. Opt for bookkeeping automation and AI tools with direct integrations into the rest of your business systems. This way, you can avoid constant .CSV file uploads and manual reconciliations across tools, saving you a ton of time (and stress).

Will AI replace bookkeepers? It’s unlikely. You don’t need to worry about choosing between AI bookkeeping and established accounting practices because you’re going to need both. 

AI tools expedite workflows, but the human touch is still very much necessary for a number of finance processes that require strategic guidance and organizational context. AI tools only have the data they are given, whereas your team has years’ worth of business knowledge that they can apply to financial decisions. 

When it comes to judgment calls, exception handling, growth planning, tax prep, and other similar processes that require more than just data to take action, humans always need to be in the loop. 

AI can support bookkeepers and accountants in making financial decisions, but they won’t be able to fully replace human expertise.

Mercury rethinks what business banking should look like. Loved by over 200,000 of the most ambitious entrepreneurs on the planet, Mercury offers everything startup founders and small business owners need when it comes to their money. From business banking to credit cards and treasury, Mercury is built for modern growing businesses.

Our tools offer real-time data visibility that supports AI bookkeeping tools, so you have clean, clear, and consistent data to inform business decisions. Plus, Mercury integrates natively with the best accounting software for startups, many of which use artificial intelligence. If you’re looking to use AI bookkeeping tools, then Mercury is an important part of your tech stack.

Smart startups use AI automation as leverage to enhance manual and repetitive tasks, like categorizing transactions and matching receipts. The time you save here goes towards implementing growth strategies to take your business to the next stage. 

Developing business strategies, making important judgment calls, and establishing business relationships — that’s up to you. AI tools can support your work by offering data analysis, but, in the end, it’s your operational experience and business expertise that’s in control. 

Partner with the right tools, like Mercury, so you have clarity around your business’s financials every step of the way — whether you use AI bookkeeping or old-school approaches.