Data Action Layer October 5, 2023

Never miss a deadline with automated K-1 processing

by Elizabeth Matson

Website Automating K1s

Private equity and alternatives investors often process large volumes of Schedule K-1s—tax documents which are used to report income, deductions, and credits allocated to partners, shareholders, or beneficiaries. The same is also true for Schedule K-2 and K-3 documents, which apply to international income and deductions, respectively. 

In addition to their value for tax reporting purposes, firms conducting due diligence can use K-1s to obtain a full picture of an entity’s financials. As a Limited Partner (LP) or a service provider in private equity, you might process thousands of data-rich Schedule K-1s per year. Processing your K-1s quickly and accurately is crucial to keeping your workflow running smoothly.

If your team is manually processing your K-1s, K-2s, K-3s, and other incoming tax forms, they’re likely spending hundreds of hours on data entry, tracking, reconciliation, and validation. The data being manually extracted for filing taxes and reporting on valuations to clients might also be used to populate databases, spreadsheets, or specific reports, requiring reformatting, appending or prepending data, or even enriching the data with new information to ensure it’s compatible with your existing dataset.

Using advanced AI and machine learning, you can automate your K-1 processing and, at the same time, boost your team’s efficiency and future-proof your data workflows.

How automation can transform your workflows

It goes without saying that automation increases the speed with which you can complete a task—when even just one piece of your K-1 intake workflow that was previously done by your team can be automated with a software platform, you’re saving time and increasing your ability to scale. But what does that mean in practice for your business?

You’re staying ahead of deadlines.

With a fully automated workflow for your K-1s, you’ll never need to worry about missing a tax deadline. Your data is there when you need it, regardless of competing priorities or urgent tasks that might require your team’s attention.

You’re not just moving faster—you’re delivering better data to your team.

Turn every valuable datapoint from your K-1s into actionable data that can be leveraged in your business, without slowing down your workflows or needing to add resources as you scale. Integrating custom data transformations into an automated workflow means that any datapoint can be reformatted to match downstream systems before your team even touches it.

You’re improving your accuracy.

Instead of relying on manual checks and failsafes, you can incorporate built-in validation checks throughout your K-1 processing workflow. Automatically flag missing data or data that doesn’t add up, either mathematically or logically, so you can be confident that nothing will fall through the cracks.

You’re ensuring your workflow is transparent and auditable.

You can stay compliant with SEC regulations and meet the expectations of your clients with 100% traceable and validated data. Each datapoint can be traced back to its source in full detail and with a complete account of how it was processed.

You’re generating real-time data.

If you have to manually process a backlog of K-1s each week, any decision-making will lag behind. Automating the initial processing can give you nearly-immediate access to the most up-to-date data for your portfolios. Not only can your decisions be based on the most recent data (instead of last month’s or even last week’s)—but you will enjoy additional time for every decision you make.

You and your team are making better decisions.

With clear, accurate, and actionable financial data being reported through incoming K-1s, you can inform your other business systems and democratize data access across your organization. Non-technical team members and even leadership can make faster, more precise decisions via the CRM, ERP, or other business systems that they already know.

Capturing every piece of data from your K-1s, K-2s, and K-3s accurately and with minimal human intervention translates into more efficiency and better decision making, along with full transparency and auditability. Ultimately, investors who know how to put their data to work for them will optimize their returns and stay ahead of their competition.

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