AI and machine learning have become common buzzwords over the years, however despite this, they’ve been accessed mostly by big business, who have the resources and budgets to implement them. This undoubtedly puts SMEs at a commercial and operational disadvantage.
This is now changing. As AI investment grows, increasingly AI tech is targeting smarter accounting for the SME.
First, it may be useful to define key terminology.
Artificial Intelligence (AI): Artificial intelligence leverages computers and machines to mimic the problem-solving and decision-making capabilities of the human mind.
Machine Learning (ML): Machine learning is a branch of artificial intelligence (AI) and computer science which focuses on the use of data and algorithms to imitate the way that humans learn, gradually improving its accuracy.
At its very basic level then, accounting AI software takes away the arduous and monotonous tasks of financial operations and problem solving through greater streamlining and automation. Cloud-based platforms such as Xero use AI along with open banking technology to keep accounts up to date and with a few additional simple inputs, can determine the amount of tax due and can help with forecasting for the business.
Going further however, these platforms can recognise patterns, learning from them to better inform critical bottom line figures as well as implementing greater streamlining. For example, they can suggest tax categories for business transactions and after a period of time, AI learns such behaviours to automatically categorise future ones.
At their core, AI accounting platforms remove the need to manually enter data and the right formulas in Excel spreadsheets, freeing up a substantial amount of time for business owners and accountants to do higher-level work.
While the day-to-day AI actions already mentioned can help streamline financial processes, particularly for time and resource poor SMEs, accounting AI has additional benefits for this segment.
In the current climate, “core accounting has become increasingly complex due to economic factors like supply-chain disruptions, labour shortages and inflation”, said Bonita Stewart, board partner at VC firm, Gradient Ventures.
While some large businesses already have manpower to tackle this as well as being able to afford the AI software to help, SMEs are being left behind on both counts despite arguably needing them more. The cost of business is rising with SMEs facing the brunt of it the most; 80% have faced increased supply costs and the biggest concern amongst them is the increased cost of business as a result of the Ukraine conflict, inflation, and lower output.
“Demand for spending management and expense-report apps is expected to rise as companies brace for rising inflation and higher interest rates,” - Pitchbook Data Inc.
Such software can help significantly with cash flow and forecasting for SMEs who often see a far more fluctuating balance sheet than their corporate counterparts, and can enable investment opportunities to show themselves more clearly. Xero, for example, is able to predict a bank balance up to 30 days in advance, allowing for SMEs to become more agile.
AI accounting software is the smartest way to tackle these issues with quicker and more accurate solutions and predictions, and it’s fast becoming a necessity for SMEs to not only remain competitive but to stay afloat.
As is the way with technology, AI accounting platforms are becoming more advanced in their capabilities. For example, to better manage expenses, computer vision can extract data from receipts and invoices with great accuracy and then leverage machine learning and analytics to fill in missing entries into expense reports. A far quicker process that has far less potential for human error.
The importance and growing relevance of AI accounting can be seen in the growing investor interest too. Many investors are predicting that due to recession fears, more companies will be focusing on tracking and controlling spending, which would heighten the demand for AI accounting tools.
Over the next five years, market research firm Technavio believe the global account software market to see a compound annual growth rate of nearly 10%, or roughly $7bn annually.
According to PitchBook Data Inc. in Q1 2022 alone, AI-powered accounting startups have raised $233.3mn in venture capital, already far ahead of the $210.2mn total funding in 2021 for the same sector. Interestingly to prove this point further, AI-enabled tools for media, entertainment and vehicles saw a decrease in funding.
Admittedly, the world of AI and ML may feel intimidating for smaller businesses who may not have the team to maintain the technology once it’s in place. However, hopefully as this article has shown, if you’re already using a cloud-based accounting platform, like Xero or Quickbooks, the likelihood is that you’re already taking advantage of the technologies pretty seamlessly.
As more advanced accounting AI capabilities emerge, it’s useful to note that many are available as add-ons to the platforms you’re already using - just go to the platform’s marketplace for their approved partners.
In addition, tech startup culture is very much based on user feedback and ensuring a seamless customer experience from onboarding through to ongoing use. It’s always worth getting in touch directly with the company that meets your needs for a personalised demo and to ask any questions you may have as most are wanting to understand your needs, so they can build out and develop their product.
It’s come to a point that by actively not embracing AI accounting, SMEs are putting themselves at a higher risk of folding. However, by including more AI technology into your business, efficiency and responsiveness to external factors, like supply chain challenges and the global economy, are increased allowing for better oversight into your business’ accounts and the overall management and competitiveness of business itself.