Vlad Rusz is a CPA at Centaur Digital Corp, helping busy business owners efficiently manage their accounting systems.
It seems AI has taken over our world, and anyone not utilizing tools like ChatGPT is likely to fall behind. These tools are indeed powerful and provide everyone with access to a level of knowledge and insight usually reserved for industry professionals.
So, how reliable and useful can AI be for small business owners as they navigate their own accounting? Here are five ways AI can help small business owners, as well as some common pitfalls to be aware of in the process.
1. Analyzing Financial Statements
AI can help small business owners understand financial statements like the P&L and balance sheet. Financial statements can be powerful tools to help analyze what is happening in a business, but they require some comprehensive accounting knowledge to read correctly.
AI can bridge this gap by doing the analysis for you and essentially translating the numbers into simple terms that anyone can understand. But use caution: AI will give you an answer no matter what, and it might not be the correct one.
I recently used ChatGPT to compare my current year’s income statement to the prior year. AI was able to give me percentage breakdowns of my expenses and provide some insights into expense lines I should keep an eye on. However, AI’s answer on what I could do to improve profitability was too general to really help.
2. Reducing Bookkeeping Costs
The bookkeeping function in most businesses used to be a heavy data entry and record-keeping department. Thanks to general advances in technology, not just AI, most of the data entry and recordkeeping are automated, which can save business owners thousands in accounting costs.
AI is being deployed more and more in bookkeeping tasks, which will further decrease costs and shift this function from a data entry position to a software management position. While this decreases costs and requires fewer people, the people needed must be better trained and demand higher compensation. Now, a bookkeeper not only has to enter data but also has to ensure bank feeds stay connected and are accurately downloading information, and that automated rules are working correctly.
3. Explaining Tax Concepts
If you have a good accountant, you might already have someone you can call if you have tax questions, but sometimes they can charge by the hour or are unavailable to answer what you hope is a simple question. AI can bridge this gap and give you, at a minimum, a simple understanding of the tax concepts behind your question, which your accountant can then hopefully confirm.
Note, however, that most AI systems will generalize and oversimplify some tax concepts, which is great for when you are trying to understand ideas, but not helpful if you want a definitive answer for your specific case. I recently encountered a situation where a client used an AI agent and thought they had tax nexus in a state simply because they had clients there. In his specific situation, it was not the case, but the AI agent was asked a question, so it provided an answer.
4. Performing Predictive Analysis
AI can particularly shine in predictive analytics and financial projections, as these projections are based on many assumptions and model-building, but it is never an exact science. Financial projections by an experienced professional are going to be more accurate than those done by AI, but the cost is prohibitive for small business owners.
However, AI will likely provide projections that are better than those made by an inexperienced owner trying to DIY it. Financial projections should be logical, so if the results are nonsensical, revisit the entered data. AI can also help explain how the numbers were derived, which should help spot any inaccuracies. After uploading my income statement to analyze past financials, I asked ChatGPT to provide a pro-forma statement for the next year if our growth were to stay the same. It was able to do this much faster than it would have taken me to enter all the data into a spreadsheet.
5. Providing Ideas For Improvement
Once you’ve loaded your financial data into an AI system like ChatGPT, it can provide ideas to improve your business. While the ideas might not all be possible, nor necessarily the best options for your business, it is a great tool to start a brainstorming session. AI can also help identify possible problem areas that require further attention.
When I asked ChatGPT for some ideas to improve profitability, it gave me mostly generic answers to start. However, after some more prompting and asking for more details on its recommendations, it started to provide more actionable strategies.
Bridging The Knowledge Gap With AI Tools
AI will likely not replace experienced professionals like accountants and tax professionals for small businesses any time soon, but it has already changed the landscape. It can bridge the gap for small businesses that might not have the funds for experienced professionals but still need some basic understanding of accounting topics. Further, AI can be an additional source of ideas and insight to bring into the conversation with your accountant.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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