Can AI revolutionise financial decision-making for SMEs?

In today’s fast-paced business landscape, SMEs are constantly seeking avenues to optimise operations, maximise efficiency and save costs. As AI continues to shake up processes across industries, some may be wondering: Could AI deliver the financial insights SMEs need? To put the theory to the test, Steve Paul, below, deputy CFO at Equals Money asked a chatbot the following question:

How can I save money in the next 12 months as an SME?

From supply chain optimisation to tech investment, Steve dissects the top 5 strategies generated, and shares his insight on their validity and effectiveness for saving small businesses money in 2024.

  1. Strategic Procurement and Supplier Management:
  • AI says: Review your procurement processes and supplier relationships to drive cost savings. Consolidate purchases with preferred vendors to leverage volume discounts. Negotiate favourable terms and contracts with suppliers, including pricing, payment terms, and service level agreements. Explore alternative sourcing options, such as global sourcing or strategic partnerships, to reduce costs.

It’s got this one right, reviewing procurement processes and supplier relationships is essential for helping SMEs optimise costs, ensure quality and reliability, mitigate risks, and sustain growth in a competitive market. By looking at how we buy things, we can spot where things get stuck and fix them, making the process run smoother, and hopefully more cost effectively. Once processes have been reviewed, it’s crucial that a close eye is maintained on supply chains to ensure their ongoing health and effectiveness.

  1. Risk Management:
  • AI says: Evaluate and mitigate risks that could impact your business financially, such as currency exchange rate fluctuations, interest rate changes, and supply chain disruptions. Implement risk management strategies to protect your bottom line.

All businesses that make transactions, payments, or purchases in foreign currencies are exposed to foreign exchange (FX) risk. Whether it’s through selling on an international site like Amazon or importing from abroad, FX exposure is an unavoidable part of international trade. Therefore, as the bot suggests, currency risk management should be a top priority for reducing unnecessary losses.

While some small businesses may wish to play it safe and mitigate as much exposure to market fluctuations as possible, others may wish to gamble on FX rates in the hopes of facilitating growth. Deciding whether or not to take this risk will depend on your business’s margins, and the amount of revenue which is tied up in international trade.

It can be challenging for a small business to make this call, but by working with a payments partner which offers expertise in FX, businesses can gain insight to better inform their decision making and implement appropriate risk management strategies. This may include exploring hedging options, diversifying markets, and staying informed and ahead of global economic trends and exchange rate movements. Daily digestible market insights, such as the ones available on the Equals Money blog, are a great place to start.

  1. Travel and Expense Management:
  • AI says: Implement strict policies and procedures for travel and expense management to control costs associated with business travel, entertainment, and other discretionary spending. Encourage virtual meetings and utilise video conferencing to reduce the need for travel.

While travel does make up a significant (and growing) proportion of businesses budgets, this isn’t necessarily something which needs to or should be curbed in efforts to cut costs. Research from 2022 found that on average, for every $1 spent on business travel arrangements, there was an estimated $12.50 return on investment in revenue. What’s more, the research found that half of prospective customers onboarded to a new business after an in-person meeting, as opposed to just 31% without.

Instead of curbing business travel spend, where investment can result in a potential payoff for SMEs. Expensing platforms and virtual cards can empower employees to continue building these key networks while allowing financial leaders real time spending visibility, streamlined invoicing processes and more flexible budget controls. From our own customer data, we’ve seen a whopping 247.5% increase in travel spend between 2022 and 2023, and expect this trajectory to continue in 2024.

  1. Explore New Markets:
  • AI says: Look for opportunities to expand your business into new geographic regions or target different industries. Conduct market research to identify underserved markets or niche segments where your expertise can add value. Develop a targeted marketing strategy to reach and engage potential clients in these markets.

Expanding into new markets can be a great way for small businesses to grow and reach new customers to  bring in more sales. But it’s not all smooth sailing. There are risks involved, like facing tough competition, dealing with different rules and regulations, and setting up for cross-border payments. So, before diving in, it’s essential to do your homework.

Ensuring you’ve got the infrastructure in place to make and receive international payments, without incurring heavy conversion fees or being held back by length processing times, should be a key consideration when starting out in a new market. Setting up a Multi-currency International Bank Account Number (IBAN) can facilitate seamless transactions while Forward Contracts or Spot Trades can help lock in exchange rates while the markets are high. Once you’ve got the initial groundwork in place, expanding into new markets can really pay off for your business.

  1. Technology Investments:
  • Invest in technology solutions that can automate tasks, improve productivity, and reduce operational costs. This could include implementing enterprise resource planning (ERP) systems, adopting cloud-based services, and leveraging data analytics for better decision-making.

As UK SMEs slash costs to weather the current economic climate, tech investment is an area which has remained unscathed. In fact, Barclays latest report on the topic found that SMEs are committing almost half (48 per cent) of their annual revenue to technology. This is in the hope of bolstering productivity (45 per cent) and future-proofing their business (44 per cent). Likewise, Equals Money is seeing a similar trend among its customers, with a 30.5% increase in tech spend between 2022-2023.

Switching from old-school systems to fintech solutions brings an array of benefits including automation, smoother operations, and better data insights. In turn, this can boost efficiency, cut down on manual labour, and ultimately save small businesses money.

However, it’s rare that a one size fits all solution exists for businesses. What works for your competitor may not offer the same benefits to your organisation.

Good suppliers should always take the time to give an honest appraisal of whether their product is right for you and should leave you feeling empowered to devote time to what matters most – growing your business.

So how did the bot do?

Overall, the strategies provided by the chatbot are good tactics for SMEs looking to save money over the next 12 months, however, none are particularly revolutionary. The strategies provide a solid starting point but lack the nuance and understanding of individual business goals and needs.

That’s not to say SMEs shouldn’t be utilising AI in their processes. Automation is great for data analysis and streamlining processes, which can cut costs and lead to improved decision making. AI can even be used as a jumping off point when looking to review processes, as we’ve done here. However, for now, it’s best to leave the big decisions with those who know their business the best.

If you’re looking for advice on how to make savings and optimise your business payments, speaking to a real person who can understand the unique elements of your business and provide tailored solutions is the place to start. The experts at Equals Money are always here to help.