The future of small business accounting: what to expect in the next five years

The world of small business accounting is on the cusp of significant change. As technology evolves and the economic landscape shifts, small businesses will need to adapt their accounting practices to stay competitive and compliant. In the next five years, we can expect several key trends to redefine how small businesses manage their finances. This blog post will explore the future of small business accounting, highlighting developments that go beyond the usual predictions of automation and cloud computing.

1. The rise of ai-driven accounting

Artificial intelligence (ai) is set to revolutionize small business accounting by automating complex tasks and providing deeper financial insights. Ai-driven tools can handle everything from invoice processing to tax compliance, freeing up time for business owners and accountants to focus on strategy rather than routine tasks. However, the real game-changer will be ai’s ability to provide predictive analytics, offering small businesses foresight into cash flow trends, expense management, and potential financial risks.

According to a 2023 report by deloitte, over 70% of small businesses are expected to adopt ai-driven accounting tools by 2028, with early adopters already seeing a 25% reduction in administrative costs. As ai becomes more sophisticated, it will offer personalized financial advice, enabling small businesses to make more informed decisions in real-time.

2. Blockchain for enhanced transparency and security

Blockchain technology is often associated with cryptocurrencies, but its potential for small business accounting is far-reaching. Blockchain can provide a secure, transparent, and tamper-proof ledger for financial transactions, reducing the risk of fraud and errors. This technology will become increasingly important as businesses seek to enhance the integrity of their financial data and streamline audit processes.

A 2022 study by pwc found that blockchain adoption in accounting could reduce financial fraud by up to 50% due to its decentralized and immutable nature. Over the next five years, small businesses are likely to see blockchain integrated into accounting software, providing an extra layer of security and trust in financial reporting.

3. The integration of environmental, social, and governance (esg) reporting

As consumers and investors become more conscious of sustainability and corporate responsibility, small businesses will need to integrate environmental, social, and governance (esg) factors into their accounting practices. Esg reporting will go beyond financial performance, tracking metrics related to environmental impact, social responsibility, and corporate governance.

By 2028, it’s estimated that over 60% of small businesses will incorporate esg metrics into their financial reporting to meet investor demands and comply with emerging regulations, according to a 2023 report by kpmg. This shift will require small businesses to adopt new accounting standards and practices, focusing not just on profit, but on their overall impact on society and the environment.

4. The expansion of real-time financial data

The demand for real-time financial data is growing as businesses seek to make faster, data-driven decisions. In the next five years, we can expect small businesses to move away from traditional monthly or quarterly financial reporting cycles towards continuous, real-time reporting. This will be facilitated by advances in cloud accounting software, which can automatically update financial data and generate reports on demand.

A 2023 survey by xero revealed that businesses using real-time financial data were 30% more likely to achieve their financial goals than those relying on traditional reporting methods. As this technology becomes more accessible, even the smallest businesses will have the tools to monitor their financial health in real-time, improving agility and decision-making.

5. The rise of virtual cfos and advisory services

As small businesses become more complex, the demand for strategic financial guidance will grow. Virtual cfos (chief financial officers) and accounting advisory services are expected to become increasingly popular, offering small businesses access to high-level financial expertise without the need for a full-time hire. These services will leverage technology to provide real-time financial insights, strategic planning, and risk management advice.

By 2028, it’s predicted that 50% of small businesses will engage with virtual cfo services, according to a 2022 report by the american institute of cpas (aicpa). This trend will allow small businesses to benefit from expert financial advice tailored to their specific needs, helping them navigate challenges and seize opportunities.

6. Increased focus on data privacy and compliance

With the growing reliance on digital tools and cloud-based accounting solutions, data privacy and compliance will become even more critical. Small businesses will need to ensure that their financial data is protected against breaches and that they comply with increasingly stringent data protection regulations. This focus on privacy will also extend to how businesses handle customer data, as more stringent laws like gdpr (general data protection regulation) and similar regulations in other regions come into play.

A 2023 study by cybersecurity ventures estimated that cybersecurity breaches in small businesses could increase by 20% over the next five years if adequate protections are not in place. As a result, we can expect to see more advanced security features integrated into accounting software, as well as increased demand for services that ensure compliance with data protection laws.

7. Automation of tax compliance

Tax compliance is one of the most time-consuming aspects of accounting for small businesses. However, the next five years will see significant advances in the automation of tax processes. From automatic tax calculations and filings to ai-driven audits, small businesses will be able to manage their tax obligations with minimal manual input.

The irs reported in 2023 that businesses using automated tax software experienced 35% fewer errors in tax filings compared to those relying on manual processes. As tax laws become more complex, automated solutions will help small businesses navigate these challenges with greater accuracy and efficiency.

8. The role of accounting in business strategy

As accounting becomes more integrated with technology, its role within small businesses will shift from a primarily administrative function to a strategic one. Accountants will increasingly take on roles as business advisors, using financial data to provide insights that drive growth and innovation. This shift will require small business accountants to develop new skills, such as data analysis and strategic planning.

A 2022 report by ey suggested that accounting professionals who adopt a more strategic role within small businesses can increase their value to the company by up to 40%. This trend will not only change the nature of accounting jobs but also how small businesses leverage their financial data for competitive advantage.

9. Adoption of global accounting standards

As small businesses expand into global markets, the adoption of international accounting standards will become more common. Global standards, such as the international financial reporting standards (ifrs), will simplify cross-border transactions and make it easier for small businesses to attract international investment.

By 2028, it’s anticipated that a significant number of small businesses will adopt ifrs or similar global standards, especially those looking to expand globally, according to a 2023 survey by the international accounting standards board (iasb). This shift will require small businesses to stay informed about global financial reporting requirements and ensure their accounting practices are aligned with these standards.

10. Personalization of accounting services

Finally, the future of small business accounting will see a move towards more personalized services. Accounting software and service providers will increasingly offer customized solutions tailored to the specific needs of different industries, business sizes, and growth stages. This trend will be driven by advances in ai and machine learning, which can analyze a business’s unique financial patterns and offer personalized recommendations.

A 2023 report by intuit predicted that by 2028, personalized accounting services will become the norm, with 75% of small businesses using customized solutions to manage their finances. This shift will enable small businesses to get more value from their accounting services, ensuring that they receive advice and tools that are specifically designed for their unique circumstances.

Conclusion

The next five years will bring profound changes to small business accounting, driven by technological advancements, evolving regulations, and the increasing complexity of global markets. Small businesses that stay ahead of these trends by adopting new technologies, enhancing their data security, and leveraging personalized accounting services will be better positioned to succeed in a rapidly changing landscape.

As accounting continues to evolve from a back-office function to a strategic driver of business success, small businesses must adapt their accounting practices to harness the full potential of these emerging trends. By doing so, they can not only ensure compliance and accuracy but also gain a competitive edge in the marketplace.