AI in Accounting and Finance

In the dynamic world of small business, the emergence of AI within accounting and finance could revolutionize how owners manage and strategize financial operations. As a small business CFO, navigating this new terrain of AI-driven financial management can be both exhilarating and challenging. However, while the potential is intriguing and exciting, AI solutions currently fall short of what small business owners need.

I recently sat in a meeting with a client looking to potentially purchase an app company. While discussing the potential, one of the topics that emerged was the chance to incorporate AI into the existing app. The idea was that AI could make predictions based on statistical analysis. After more discussion, I asked, “What is the difference between AI and statistic analysis?”.

That question is just one that sums up the state of AI in accounting and finance for most small businesses. While AI promises unprecedented efficiency and insights, it also brings a landscape of uncharted complexities and more questions than answers. These complexities lead to most small businesses struggling to implement AI within their business.

In this article, we delve into AI’s current state and future potential in small business accounting and finance, offering a realistic perspective on what AI can and cannot yet achieve. Whether you are looking to streamline your accounting processes or seeking ways to leverage AI for strategic financial planning, understanding the role of AI in today’s financial ecosystem is crucial for every forward-thinking small business CFO.

The Current State of AI in Small Business Finance and Accounting

For AI to impact small business finance and accounting, at least initially, it will need to meet users where they currently are. In other words, most businesses are not interested in redefining many of their processes to utilize AI. Rather, they want to incorporate AI into their current processes, software, and systems.

While someday the benefits and features of AI might be so overwhelming that small business owners would be foolish not to adjust their current systems, that day is not today (nor does it appear to be anytime soon). While today’s version of AI seems to be in its infancy, when it comes to application to accounting and finance, it may still be in the womb.

At least in the interim, Ginni Rometty, the former CEO of IBM summed up best where AI will most likely impact accounting and finance. Rometty said, “Some people call this artificial intelligence, but the reality is this technology will enhance us. So instead of artificial intelligence, I think we’ll augment our intelligence.” The next logical step for AI in accounting and finance is not to administer systems, processes, and make critical decisions. Rather, it is to supplement decision-making and create efficiencies.

The Near Future AI in Small Business Finance and Accounting

A few studies summarize where the next few years of AI’s integration into accounting and finance will most likely land:

A study by Accenture found that AI could increase business productivity by up to 40%.
According to IBM, AI can help reduce financial reporting errors by up to 37%.
Deloitte’s insights suggest that transactional accounting (billing, collections, payroll, etc.) can be fully automated using AI, leading to labor cost reductions of up to 40-75%.

This data points to where AI’s initial impact mostly being the ability to automate mundane tasks, reduce errors, and cut costs associated with data management. In simple English, day-to-day bookkeeping will become more (not fully) automated. While this might not be the sexy version of AI that most people think of, it could have a significant impact on small business owners.

The good news is that we are already on the path. For example, services such as Bill.com, Dext, or even QuickBooks’ internal invoice recognition tool have dramatically reduced input time. Simply sending an email with an attached vendor invoice to one of these tools cuts down on the need for much of the data entry. These tools can scan the PDF document, look for relevant data, and input the invoice into your accounting software. Soon, these tools will be able to analyze spending habits, review and compare pricing, and offer insights into different ideas for cost reduction.

Other areas, such as invoice follow-up, timekeeping review, transaction coding, and simple reconciliations, can also currently be done by AI. Over the next few years, AI will increase the accuracy with which it can perform these and other bookkeeping-related tasks.

Automation and tools like this are a massive win for all owners. If an owner is already involved in mundane accounting processes, this will save them considerable time. For those owners paying someone else to do bookkeeping, it will save money. While AI will not eliminate the need for human interaction with their accounting system, it will dramatically impact how we interact with such systems. It will move humans to a review and analysis role that takes only a fraction of the current time and will allow them to add more value to the process.

What Doesn’t Work with AI Currently

While you will find others that say tasks such as financial forecasting and planning will also become fully automated, I would push back on that. Tasks such as forecasting, regulatory reporting, risk management, and real-time analysis are both science and art. The problem is that the technology has yet to show that it can replicate the thought and analysis humans bring to the process.

Over the past few years, several tools have aimed to complete tasks such as forecasting for accountants. I use a tool called Fathom, and there are others such as Prophix, PlanGuru, Jirav, and Cube, which tout many AI-like features. However, as a user of most of them, they fall severely short of being able to complete a reliable forecast. No doubt they cut down the required work needed. However, they typically provide more generic results and fail to consider several variables, business tendencies, and ownership preferences.

That is not to say they won’t be able to in the future. However, if the progress that AI budgeting tools have made over the past 3-4 years is at all reflective of the next few years, there is a long way to go. What is exciting is the assistance AI could offer in forecasting and budgeting. AI will soon offer insights into existing forecasts, which would be a huge help for CFOs and small businesses.

Sundar Pichai, the CEO of Google, said, “AI is a tool that can be used to enhance human decision-making, including in the world of finance and accounting, enabling more efficient and accurate outcomes.” At least in the near future, AI will impact higher-level accounting and finance tasks the most. Whether it is an outsourced CFO or small business owner who leads the accounting function, forecasting, and other high-level tasks, AI will more likely enable better outcomes rather than dictate them.

Can Chat GPT become Chat CFO?

I recently loaded one of my client’s forecasts into Chat GPT. I implored it to give me insights into adjusting or improving given certain market conditions. In my directions, I identified several critical strategic initiatives along with a few market considerations.

The feedback I received was very textbook and offered few insights into potential tactical improvements. I received feedback such as “Efficiency Gains: Have you considered how certain efficiency gains that employees can make may impact other cost areas?”. This is hardly the insight I was looking for.

This experience with AI is an example of most efforts to get real analysis from it. While the insight is often correct, it’s just not very impactful. While the tools that AI enables over the next several years will most likely change this opinion, currently anything that requires both science and art its not very effective.

The Future Outlook of AI in Small Business Finance

While I think that AI in accounting and finance is still at least a few years away, there are several areas that I am excited about. As a CFO, I fully welcome the efficiencies AI will bring and the ability it will enable me to do my job more effectively. Here is a list of five areas that I think we will start to see strides.

Data Processing and Management: AI automates the processing of vast amounts of financial data, transforming unstructured data into structured, actionable insights. This reduces the time and effort required for data entry, reconciliation, and management.
Error Reduction: By automating routine tasks, AI minimizes human errors in financial reporting, bookkeeping, and data entry, enhancing the accuracy of financial records. I have heard that 30% of Excel sheets contain a material error. Imagine the improve decision making that better data could provide.
Financial Forecasting and Planning: AI helps in predicting future financial trends and market conditions by analyzing historical data, aiding in more informed and strategic financial planning. As stated earlier, AI will not take over this function, but it can greatly increase the usability of these tools.
Cost Reduction: By automating routine tasks, AI reduces the need for extensive manpower in financial departments, leading to cost savings. The bookkeeper of today will become an AI administrator of sorts, setting up systems using AI to complete the bookkeeping function.
Scalability: AI systems can easily scale according to the growing volume of financial data and transactions, making them suitable for businesses of all sizes. I have already seen with my clients the ability to scale their accounting function without the need to hire more people due to efficiencies AI creates.

Practical Tips for Small Business Owners Looking To Incorporate AI into Their Accounting

As my clients will tell you, I like to leave you with some practical tactics to start your journey. Here are four tidbits of advice for small business owners looking to incorporate AI into their accounting.

Start Small: Begin by integrating AI into simpler tasks like data entry or invoice processing. Tools like QuickBooks’ internal invoice recognition can significantly reduce manual work.
Focus on Efficiency: Use AI to automate routine tasks. This not only saves time but also reduces the risk of errors in financial records. Think of processes like invoicing, bill input, or cash reconciliations.
Leverage AI for Insights: Employ AI tools that provide financial insights, such as spending patterns or cost-saving opportunities. This can aid in better financial decision-making.
Choose the Right Tools: Select AI applications that integrate well with your existing systems to ensure a smooth transition and immediate benefits.

QuickBooks Online and AI – A Future Holy Grail?

QuickBooks Online is estimated to be the accounting software for over 70% of businesses in the United States. The amount of data the servers at Intuit poses is overwhelming. While each individual company owns their data, Intuit typically has the right to access this data, but under specific conditions and usually for defined purposes. These purposes can include providing the service (such as cloud storage of the data), improving and maintaining the functionality of the software, customer support, and sometimes for analytical purposes.

The power of Intuit starting to use AI across the data they have access to poses huge potential to provide insights into both daily bookkeeping and financial analysis. By leveraging AI, QuickBooks Online could analyze vast amounts of client data to provide business owners with predictive analytics, trend analyses, and tailored financial advice. This means that businesses, regardless of their size, could access the kind of data-driven decision-making support once reserved for large corporations with dedicated analytics departments.

For business owners, the practical implications of AI-enhanced QuickBooks Online are immense. Imagine a scenario where the software can automatically categorize expenses, forecast cash flow trends, and identify financial risks before they become problematic. This level of automation and insight reduces the time and effort spent on manual data entry and analysis, allowing business owners to focus more on strategic decision-making and growth initiatives.

Moreover, AI-driven anomaly detection could significantly improve financial accuracy and fraud detection, ensuring a higher level of financial integrity and trustworthiness. The software’s ability to learn from and adapt to a business’s specific patterns and needs means that the financial advice and insights it provides become more refined and valuable over time.

Furthermore, the introduction of AI into QuickBooks Online and Intuit’s offerings has the potential to democratize high-quality financial analysis. Small and medium-sized businesses, which may not have the resources to hire extensive financial teams or invest in complex data analysis tools, can benefit immensely from AI’s scalability and cost-effectiveness. They can gain insights into market trends, customer behaviors, and internal financial efficiencies at a fraction of the traditional cost. This not only levels the playing field for smaller businesses but also encourages a more data-informed and proactive approach to business management.

Conclusion

Throughout this article, we’ve explored the burgeoning role of AI in the realm of small business finance and accounting. While the potential of AI is indeed vast and transformative, it’s clear that we are still in the early stages of truly harnessing its power. For small business CFOs, the current landscape offers a mix of practical tools and future possibilities. AI’s capability to automate routine tasks, reduce errors, and provide insightful data analysis is already bringing significant changes to the financial sector. However, the full scope of what AI can achieve in complex decision-making and strategic financial planning is yet to be fully realized.

As we navigate this evolving field, it’s crucial for small business owners and CFOs to approach AI with both optimism and caution. Embracing the efficiencies and insights that current AI technologies offer, while staying informed about future developments, is the balanced approach needed in this era of rapid technological advancement. The journey of AI in finance is an ongoing one, and staying adaptable, educated, and open to new possibilities will be key to leveraging AI effectively in the days to come.

Krieger Analytics Can Help

Krieger Analytics has several small business owners who rely on them as their outsourced CFO. These businesess range in sizes ($1M to $15M in sales) and industries. We are an expert in servicing small businesses because we have been an entreprenuer. Our expertise doesn’t just come from theory, it comes from practice.

If you would like to learn what a CFO can do for your small business, contact us now. We’d love to see if we are a good fit and can help you accomplish your goals.

AI In Accounting and Finance