Will AI replace accounting firms in the small biz market?

Because of artificial intelligence, small-business owners today have choices that they never had before. Financial reporting is just one of the areas where AI can reduce costs the most, especially for companies with $10 million to $70 million in revenue.

Today, many business owners still hire accounting firms to gather data, reconcile accounts, create various reports and answer management questions. 

AI can automate much of that work by reducing the time spent by a business' internal financial team or its outside CPA firm. 

1. Automate month-end close. Many finance teams spend seven to 15 days closing the books. AI can:

• Gather data from multiple systems.
• Flag unusual journal entries.
• Suggest correcting entries.
• Prepare reconciliation schedules. 
• Draft the management discussion. 

Companies often reduce the close by several days, which lets leaders make decisions using more current information.
2. Generate financial report narratives. Instead of writing explanations manually, AI can produce first drafts such as: "Revenue increased 8.2% compared with June due primarily to higher sales in the Midwest region. Gross margin declined by 1.5 percentage points because of increased freight and raw material costs."

Finance staff then review and edit rather than writing from scratch.

3. Analyze variances. Instead of manually investigating differences, AI can answer questions like:

• Why are labor costs up? 
• Which customers reduced purchases? 
• Why did gross margin fall? 
• Which product lines drove revenue growth? 

This can turn hours of analysis into minutes.
4. Prepare board packages. Here, AI can:

• Create executive summaries. 
• Explain key metrics. 
• Build charts. 
• Highlight trends and risks. 
• Recommend topics for discussion. 

Rather than spending days assembling a board deck, the finance team can focus on validating and refining the analysis.
5. Improve forecasting. Traditional forecasts often rely heavily on spreadsheets. AI can incorporate:

• Historical performance; 
• Seasonality;
• Sales pipeline; 
• Purchasing patterns; and, 
• Economic indicators (where appropriate).

The result is faster forecasting and the ability to update projections more frequently.
6. Detect errors before auditors do. AI can:

• Duplicate invoices;
• Incorrect account coding; 
• Missing accruals;
• Unusual transactions; and,
• Outlier journal entries. 

Finding these issues earlier can reduce audit adjustments and rework.
7. Answer management questions. Instead of asking the outside CPA or controller to investigate, executives could ask an AI assistant:

• "Why is SG&A higher this quarter?" 
• "Show the five largest expense increases." 
• "Compare margins by product line." 
• "Which customers are 90-plus days past due?" 

The AI retrieves the relevant data and presents it in plain language.

A cost savings example

Let's imagine a $30 million company with a CFO, a controller and three accountants.

If the team spends roughly 120 hours per month on financial reporting, 80 hours on reconciliations, 60 hours on variance analysis and 40 hours on board reporting, that's about 300 hours per month.

If AI reduces that workload by 40–60%, the team could save 120–180 hours each month. At a fully loaded cost of about $60–$90 per hour, that's approximately $85,000–$195,000 in annual labor savings, while allowing the finance team to spend more time on strategic analysis instead of routine reporting.

The biggest return on investment

The greatest value often isn't reducing headcount — it's enabling the existing finance team to close the books faster, improve accuracy, provide better insights to the leadership team, and scale as the business grows without adding finance staff at the same rate.

For companies in the $10–70 million range, AI can effectively act as an additional financial analyst, handling repetitive reporting tasks while finance professionals focus on judgment, controls and strategic decision-making.

Of course, these benefits do not come without some additional cost. Today, the cost depends less on the AI itself and more on how connected it is to your accounting and ERP systems. For a business with $10–70 million in revenue, I usually think of three tiers.

These are estimated costs today and it is assumed that as AI becomes more integrated into businesses, the cost will decrease. Let's look at an ROI example, supposing a $40 million manufacturing company has a CFO, a controller, four accountants and one FP&A analyst.

If AI saves 150 hours per month at an average fully loaded cost of $80 per hour, the company will see labor savings of $12,000 per month, or $144,000 per year.

If the solution costs $30,000 for setup and $24,000 annually, for a first-year cost of $54,000, then you could expect a net first-year benefit of approximately $90,000, and a payback period of roughly four to five months.

This estimate doesn't include indirect benefits like better decisions, fewer reporting errors or avoiding additional finance hires as the company grows.

For most companies in the $10-70 million range, I'd recommend a phased rollout:

• Phase 1 (under $50,000): Automate board reporting, financial narratives and variance analysis.
• Phase 2 ($50,000–$100,000): Connect AI directly to the ERP and BI systems for automated reporting and dashboards.
• Phase 3 ($100,000+): Add forecasting, cash-flow prediction, anomaly detection and a conversational finance assistant.
  

Can AI replace a CPA firm?

The short answer is no — not today. AI can replace many of the tasks performed by a CPA firm, but it cannot fully replace a CPA firm because licensed professionals are still needed for certain services, oversight and legal responsibilities.

Here is what I think AI can do today:

For a typical $20–50 million company, AI can do many things:

• Produce monthly financial statements;
• Write management reports;
• Explain budget variances;
• Forecast cash flow;
• Analyze profitability by customer or product;
• Monitor KPIs;
• Detect unusual transactions;
• Support budgeting and forecasting; and,
• Help prepare audit schedules.

These capabilities can significantly reduce the amount of routine work that a CPA firm performs.
So, what still requires a CPA?

Some services require a licensed CPA or audit firm because of legal, regulatory or professional standards, including:

• Signing tax returns (where required);
• Performing financial statement audits;
• Issuing review or compilation reports;
• Representing clients before tax authorities; and,
• Advising on complex accounting standards and tax strategies.

A more likely future

Rather than eliminating CPA firms, AI is changing how companies use them. Many businesses are shifting from paying CPA firms to do routine accounting work toward using internal finance staff supported by AI, and automation for bookkeeping and reporting. 

AI may reduce the need for routine outsourced accounting services, potentially lowering external accounting costs by 20–50%, depending on the mix of services. However, if the company requires annual audits or extensive tax planning, a CPA firm will remain an important partner.

Today, AI is best viewed as a way to change the role of the CPA firm, not eliminate it. It can automate repetitive accounting and reporting tasks, allowing businesses to rely less on outside firms for routine work while continuing to use CPAs for services that require professional judgment, licensing, independence or regulatory compliance. Human beings are still needed to review what AI puts out. AI does not always produce what you expect. 

The combination of AI, a CPA and internal assets will deliver the best balance of efficiency, cost savings and risk management today. Three to five years from now, the combination will be completely different.

This article was developed using ChatGPT.