3 challenges tech will solve for your firm in 2023

March 7, 2023 2:24 PM

Over the last three years, just about every brick-and-mortar retailer and restaurant has fully bought into using e-commerce platforms and payment systems to boost sales and revenue.

This trend will certainly continue. In 2022, e-commerce sales went from 13.2% to 14.8%, a substantial increase of 12%.

While these e-commerce enablers are a godsend for small businesses still struggling to survive in locations where foot traffic is scarce, they're making life miserable for the accountants and bookkeepers who are responsible for reconciling sales and deposits, analyzing P&L and maintaining general ledgers for retail clients.

You would think that ecommerce systems increase efficiency. But in reality, the opposite is often true. According to research conducted by Bookkeep in 2022, 82% of accounting firms have to manage bookkeeping tasks manually because of data errors generated by ecommerce platforms.

As a result, morale is falling and attrition is rising. With many accounting firms facing the prospect of losing the local retailers and restaurants that are the bedrock of their book of business, partners are hoping that the continued evolution of automated accounting solutions will help them overcome their recruitment and retention challenges.

While there's a whole laundry list of bookkeeping bottlenecks that automation can alleviate, these solutions will have the biggest impact in solving three key issues for accounting firms.

Reconciliation and reporting challenges

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Consider this: A single local store may sell its products and services on several online channels and accept payments from many different digital payment vendors. Each vendor has its own reporting portal, which bookkeepers have to log onto each day to download transaction records for general ledger entry and account reconciliation.

Since most e-commerce vendors' reporting formats don't speak the same language, bookkeepers often have to manually examine each transaction to parse out and enter commissions, fees, sales taxes and other charges and enter this information into QuickBooks or other accounting platforms.

This is clearly a challenge that automation was born to solve. And, in fact, a number of technology companies are stepping up to create solutions that automate the process of downloading, recording, entering and reconciling transaction data from multiple systems, removing this burden from the shoulders of overworked bookkeepers.

The challenge for automation providers is that most ecommerce software solutions use their own proprietary reporting standards, which don't always reflect GAAP. This forces automation system developers to build customized integrations to accommodate each vendor's unique reports.

Developers can't possibly accommodate the dozens of e-commerce players and service providers that enter the market every year, so they have to focus on building solutions that accommodate the industry's largest players.

The most obvious solution is for the accounting and ecommerce industry to collaborate on developing a standardized, open-source, GAAP-compliant data format that can accommodate the hundreds of different fee, commission, tax and discount structures that different systems use today, with the flexibility to add new formats over time.

Artificial intelligence can play a significant role in the development and evolution of such standards. Even if standardization never happens, AI may provide another path toward solving these issues. In fact, our team is using AI to process sales reports from any legacy data format like PDF, CSV or Excel into accounting systems.

Given the rapid advance of AI within the past few years, the next generations of bookkeeping solutions will be able to leverage machine learning to instantly translate, classify, enter and reconcile transaction feeds from any ecommerce platform on the fly without the need to build customized APIs.

State sales tax collection and reporting challenges

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One of the biggest challenges accounting firms have faced in recent years is complying with the state sales tax requirements of retail clients conducting business out of state.

Each state has its own checklist for determining when out-of-state firms must formally establish a "sales nexus" that puts them on the hook for collecting and paying state sales taxes and filing returns.

Most states require nexus to be established if the retailer generates online sales that cross a certain dollar threshold or volume of transactions. Some states exempt certain categories, such as food or clothing, while others tax nearly everything.

Many states require "nexused" vendors to remit collected sales taxes on a monthly basis. Some have more flexible payment schedules. Almost all require retailers to file state tax returns.

While some e-commerce platforms automatically calculate state sales taxes on transactions, only a few actually pay the sales taxes directly to the state.

Often, state sales taxes are bundled into deposits made to the retailer's bank account and reported somewhere in the transaction records bookkeepers download each day from ecommerce and payment systems.

It's then up to the bookkeeper to parse and record collected sales taxes for every state and work with the firm's accountants to make sure the retailer fully complies with each state's unique tax remittal and filing requirements.

Imagine the complexity of this task if the retailer has sales nexus in 45 states that collect out-of-state sales taxes. And that's just one client. An accounting firm with a dozen retail clients could end up having to make hundreds of sales tax payments every month.

Fortunately, a number of technology companies are stepping up to the plate to serve as quasi-outsourced sales tax assistants. For example, DAVO by Avalara, which provides automated sales-tax cash management, filing and payment for point of sale platforms and marketplaces, also offers an outsourced sales tax management service for retailers and accounting firms. Their platform can automatically capture sales activity and remit and file sales taxes. They recently teamed up with Bookeep to create a single connection for accountants to access proper revenue accounting and sales tax automation.

Improving recruiting and retention

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According to The Wall Street Journal, more than 300,000 accountants and auditors have quit their jobs in the past two years, either retiring or seeking opportunities in other fields.

Accounting firms shouldn't hope for a huge wave of replacements in the near future. The number of college students graduating with a bachelor's degree in accounting every year fell from 57,500 in 2012 to 52,500 in 2020, according to the Association of International Certified Professional Accountants. And the number of accountants pursuing their CPA designation is steadily declining.

With so many accounting firms competing for a rapidly shrinking pool of talent, creating a stimulating and highly rewarding work environment will be key to their recruitment and retention efforts.

With the growth of e-commerce only expected to increase over time, it's critical for accounting firms to find ways to minimize the time bookkeepers spend manually downloading, entering and reconciling daily transactions and tracking state sales tax obligations.

Automation can alleviate a huge percentage of these burdens. Right now, some companies offer accounting automation solutions that fully integrate with today's leading e-commerce and payment platforms. But in order for these solutions to evolve, more companies need to enter this space. Hopefully, at some point transaction reporting standardization, AI or a combination of both will enable bookkeepers to offload all of these manual processes to their choice of accounting automation systems that can complete these tasks with greater speed, accuracy and efficiency.

This will give accountants and bookkeepers more time and motivation to do what they really want to do — diagnosing and reporting the financial health of their retail clients and participating in strategic business decisions.