Financial management is at the heart of every successful startup, especially as young companies scale up and enter global markets. It has long been a huge challenge for resource-constrained startups to get their books in order, manage cash flow, and ensure compliance as they move into new countries. Now, AI is changing financial management for startups in a way we have not seen before – with greater efficiency, more insightful value-add, and improved scalability than we ever imagined possible.
The Need for AI in Startup Finance
Startups need access to fast-paced processes and systems, which further limits resources and time for founders who are often tasked with other roles and funder responsibilities, or do not have a finance team or CFO at all. Yet, the complex financial tasks that they must handle (tracking expenses, processing payroll, forecasting cashflow, investor reports, compliance etc) are all critical for their survival and growth.
AI can provide real-time insights and an expanded capability to provide real-time information by automating and augmenting many of these financial management tasks.Think of AI as another pair of (digital) hands and another brain for your startup finance department because AI can copy and automate tasks without fatigue, calculate numbers faster than we can think, and identify patterns and/or risks we may not see. For a startup, this means:
- More Efficiently: It automates a lot of work that would otherwise take hours to do yourself by hand, such as data entry, invoice processing, or bank reconciliations. You will use an AI tool that does this automatically or automatically incorporates an AI component.
- More Accurate: Human errors are expensive and create expensive problems in spreadsheets and bookkeeping. The AI systems you will use will be correctly and consistently every time. Assuming the AI tool is trained using your data correctly, it won’t forget what is to be entered, won’t forget to take the dollar amount and is too fatigue to miscalculate.
- Money Saving: AI tools will allow for optimization of process, because in the end this will offset hiring staff or paying consultants or other personnel overtime. In the end, both the efficiency and accuracy will eventually reflect ultimately in the bank account, because you spent less money fixing errors and paid out less employee overtime into your current operational and more money into re-investing into your startup.
- Good Data…. Great Strategy: AI tools do not simply automate. The real superpower of AI is its ability to take raw data (uber) and identify synthetic insights to use to prepare your future strategies.Startups live or die based on nimbleness and smart moves they make, and speed of those moves. AI tools uses its powers to review sales, expenses, customer’s behavioural or market data and quickly (often in nanoseconds) extrapolate great predictions about the future performance.In response, founders can access CFO-level insights in real time, helping them to answer questions such as “How much runway do we have?” or “What would happen to our financials if we expand into Asia next quarter?”Predictive analyses are very important for companies and in the past, such analyses were reserved for companies with large data science teams. Now every lean startup can access predictive analyses through AI tools.
AI Streamlines the Core Financial Processes
One of the largest immediate benefits of the use of AI in financial management is to reduce the resources needed for day-to-day bookkeeping and accounting functions. Start-ups are leveraging AI-enabled software and platforms for lower-value tasks that previously required hours of manual effort. They include:
• Automated Bookkeeping and Data Entry.Real-time accounting systems such as QuickBooks Online and Xero are growing more powerful and have auto-bookkeeping features that allow the system to categorize bank transactions, reconcile bank accounts, and even flag account discrepancies. Finally, one area of time savings that accountants have had to manually reconcile were personal bank accounts that accidentally became “business” bank accounts. Now, AI reminds users that they have personal expenses on a business account.
• Expense Management and Payroll.A second area within finance that AI is transforming today is expense and payroll management. Expense software such as Expensify or Fyle are taking over expense management from the user. These are not your parent’s expense processes. AI capabilities are enabling the use of Optical Character Recognition (OCR) technology to scan receipts and automatically insert the expense type or reason for the expense…now the user just has to take a picture of a receipt and through the use of AI the expense report will be created, eliminating any need to log or type the expense into the system.
• Financial Reporting and ComplianceWith the ability to streamline lower value tasks, AI is also bringing immense time savings to the monthly reporting function and other financial compliance functions. Preparing timely reports for management, quarterly reports for investors or external audited financial statements have always been part of the job but have become much easier to prepare with the help of AI. Many accounting systems often have a real-time dashboard that pulls in all of the data and shows you what are the key metrics or anomalies; again, in real-time with AI.
Supporting Global Expansion with AI
Startups that are planning a global expansion are going to complicate matters for accounting, but AI will help ease that burden. As you expand to new countries or markets, handling varying currencies, accounting standards, tax laws or regulations can be overwhelming for a small startup team to figure out on their own. Here are some of these simplifications with AI are being achieved.
• Multi-currency and Multi-language: Accounting systems using AI can alleviate a lot of the pain points associated to multiple currencies. First, AI finds current exchange rates and provides converted transactions in real-time, which means any reporting is more accurate across all currencies. So if your home currency is the U.S. dollar and your sales are generated in euros, you report in both currencies and can be alerted if exchange rates changes may affect reporting. Some systems are also using AI to improve exchange rate conversion.
• Local compliance and taxation: Each country has its own tax codes, and rules for reporting, and compliance. Keeping up with all of these would be daunting under any circumstances. AI algorithms have good memories and unlimited resources and flexibility to adjust so once they have changed to you, they have instant adjustment ability, and they will apply those rules consistently. For example, in the case where EU released a new VAT (Value Added Tax) rule, you will simply install your change in VAT rule in your AI-driven tax compliance tool, and it could apply to all of your transactions in that region.There are AI tax preparation tools geared to help ensure you are complying with local tax legislation no matter where you are operating, by verifying your data against current regulations.
• Global Financial Insights: When expanding globally, a startup’s financial information can become disconnected in different markets – revenue in one country, expenses in another, and assets in a different one. AI-enabled accounting software has the tools to consolidate and normalize all of this information to give you a holistic view of your global operations. Some of these software applications can produce consolidated financial information across subsidiaries, or regions, with effectively no manual input required.
• Increased Collaboration Across Time Zones: One of the realities that come with global expansion, while seeming trivial, is the interaction with both teams and partners in other time zones. AI enabled platforms can both monitor data 24/7, and potentially take some degree of independent actions or alert requests. For example, if an overseas office attended an event and made an expense, or if they need the main team to approve an urgent payment and that office is now sleeping, AI-enabled workflows can directly route that request to the right person or even approve low-risk routine items by pre-determined rules.
AI Tools and Platforms Are Transforming Financial Services
AI in financial management is not just a theoretical construct and there is a range of actually used tools and platforms available now, used wide-spread by startups.There are several types of AI-enabled solutions, and a few examples of popular tools in each category:
• AI Accounting Software: QuickBooks Online and Xero have been noted above as highly relevant in the startup space, and now have AI features built-in to the software (e.g., transaction categorization, smart reconciliation, etc). They are excellent at being a bookkeeping and accounting tool for your day-to-day tasks, and their use of AI means that you can use them as more than these old spreadsheet methods of keeping your accounting records. FreshBooks was originally invoicing and simple accounting software, but is now using AI to automate features in the bookkeeping function including automating how expenses are categorized and providing AI insight into business health.
• Automated bookkeeping & Expense Management: The accounting ecosystem is now seeing the development of startups dedicated purely to AI bookkeeping. There are services for WFO’s or really small businesses like Botkeeper and Booke AI which use AI to assist with bookkeeping by processing receipts, transactions and communicating with clients to obtain information.
• Accounts Payable Automation: Bill payments and vendor payments can be a labour-intensive repetitive task in a busy day. The accounts payable space has examples of AI solutions to fill the void, such as Vic.ai uses AI and machine learning to read invoices, matches them to purchase orders, codes them to the right account, and creates payments with minimal human interaction. Vic.ai learns from every invoice and corrects you make, over time, it becomes very adept at learning that an “Office Supplies Co.” invoice is always coded to office supplies expense account and approved by Alice (the office administrator).
• Financial Planning & Analysis Tools: Startups requiring a regular and repeatable planning process will better leverage AI-based FP&A tools. Datarails, Vena, Planful, or Anaplan are examples of tools that utilize AI in assisting organizations plan, forecast, and conduct scenario analysis. They allow you to bring in your actuals, create a model, or apply machine learning to plan your future, based on the history and an organization’s assumptions.
• Generative AI assistants and chatbots for Finance: There is an arising wave of solutions which are deploying generative AI, and chatbot capabilities (think GPT-4 and higher) to assist in executing finance functions. Microsoft for example has rolled Copilot features for its Excel, Outlook and Dynamics 365 applications which connects to your data and allows users to ask questions in natural language and create reports across your data automatically.
• Risk and Fraud Detection Systems: Startups that have any transactional nature (especially fintech and/or e-commerce startups) are increasingly involving AI as a method of retaining money. For example, a platform like Stripe has AI-enabled fraud prevention (Stripe Radar) functionality using millions of transactions to determine possible fraudulent transactions and prevent revenue loss. To assist in protecting money to the organization, AI-enabled solutions like Ocrolus help lenders or even organizations validate financial documentation (bank statements, pay stubs, and so on). Ocrolus reviews the documents to identify inconsistencies using AI.
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