The success of a small business depends on a healthy cash flow. Small businesses often don’t have the resources to effectively manage it. Business owners are busy running their operations and may not have the time or skills to manage financial projections on their own. This leads to challenges on multiple fronts — inventory management, fulfilling orders, supply chain issues, hiring and scaling business, and more. A large number of businesses fail due to inadequate capital management and the ability to predict when and how much financing they need. Optimal capital management and future projections are critical to the ongoing financial health of a business. What can a small business owner do to address this?
Advancements in artificial intelligence (AI) have the potential to offer a solution.
Artificial Intelligence: A Potential Growth Driver
AI is the new buzzword, especially after ChatGPT popularized generative AI applications such as text, image and video content generation through a humanlike conversation. There has been a frenzy ever since, leading to a proliferation of many tools.
AI has started to make inroads across different business functions, from marketing and sales to accounting and finance. According to a U.S. Chamber of Commerce report, almost 25% of small businesses have adopted AI, citing improved performance. AI systems are improving decision-making across business operations, thereby optimizing resources and providing valuable insights on market trends.
From a cash flow and financial management perspective, small businesses can use AI to automate processes and thereby:
- Bring all their receivables and payables data together
- Build cash flow projections
- Effectively build what-if scenarios and
- Show indicators of resilience despite turbulent economic environment
AI tools provide expert analytics and data driven insights on an ongoing basis, thus allowing a business to be nimble while keeping its costs low. A recent report by the Small Business and Entrepreneurship Council (SBEC) showed that 93% of small business owners concurred that AI tools offer cost-effective solutions that improve profitability. This has a direct impact on their cash flow and bottom line.
With AI tools and technology, small business owners have access to ongoing financial intelligence without needing to invest tens of hours into them, thereby allocating the saved time on growing their business. Also, these tools can be a cost-effective way of accessing expertise and talent which is otherwise out of their reach. However, it’s very important for small business owners to have a good understanding of the value that AI can bring specifically to their business.
Achieving Business Outcomes and Avoiding AI Pitfalls
There are many tools and a lot of providers touting the benefits of AI technology, all of which can be very confusing. Business owners struggling to juggle financial priorities and looking for quick solutions to simplify their financial lives can fall into a sales trap. They end up purchasing tools that are difficult to implement and/or not suitable for their industry or size. How can a small business navigate the hype and avoid these pitfalls?
Clear objectives
AI is not a one-time deploy and done deal. Before you initiate, ensure you have a clear understanding of the problem statement and an end goal. AI has the potential to offer substantial ROI but many businesses abandon AI initiatives due to poorly defined goals and lack of an understanding of the costs involved in implementing AI.
Data quality
Garbage in. Garbage out. To leverage AI effectively, the underlying data (sales, customers, inventory etc.) needs to be managed effectively. Inaccurate, incomplete and erroneous data can lead to bad outcomes. Small business should focus on data architecture first so that they can bring together siloed data and ensure its’ accuracy before passing it onto AI tools.
Validation and testing
Small businesses need to invest time and money to effectively validate and test AI solutions before becoming reliant on them for financial management. Testing should not be superficial but rather done by an expert user who has a deep understanding of business operations and financials. AI systems can be complex and embedding AI could be a costly affair. Making sure that the small business is committed through this process is a differentiator between success and failure.
In conclusion, AI can be a great enabler if done right. Small businesses need to take a measured and deliberate crawl and walk before they run approach. AI can help small businesses gain insights at scale and speed that only larger corporations could afford. It is akin to the ecommerce revolution that enabled small businesses to compete with larger businesses in online space. Furthermore, AI solutions can scale and adapt to a changing business environment, inform the owner about supplier costs and buyer purchasing power, and adjust financial projections accordingly. It’s like having a financial controller who is there to help and guide. However, AI tools are still experimental in nature and therefore need a human in the loop to ensure its optimal performance.
