Xero research shows small firms lag on AI

Small businesses across Australia, the UK and the US report growing confidence in using artificial intelligence, yet many continue to rely on it only lightly. More than half of respondents say they feel positive about integrating AI into their operations, but a majority state that losing access to the technology would not affect how they run their business.

The study of 1,100 firms found a clear link between confidence and commercial performance. Larger and more recently founded businesses display higher confidence levels than older or non-employing firms. Businesses with more than 20 staff report far greater ease using AI, while younger firms also tend to be more comfortable adopting new digital tools.

"The outlook on AI is one of necessity and hope. Conscious adoption is where the strategic value lies. I leverage AI to make the lonely CEO-time less isolated, using it as a positive and supportive sounding board for marketing conundrums. This optimism stems from the immediate support and clarity AI provides, turning overwhelming strategic challenges into manageable, uplifting tasks," said Seonaid Royall, Founder and CEO, Sprout Up (a UK-based Xero customer).

Usage patterns

Many firms say AI will become more important over the next two years, but regular use remains concentrated in a few categories. Around 44% use AI at least weekly, typically for marketing, content creation and customer service.

Business owners highlight time savings as a key benefit.

"The most valuable asset AI gives me is time. Everything I do revolves around saving time, and as a busy solo owner who is also in school and running a family, AI is an absolute lifesaver. I can confidently say I reclaim a good six to eight hours a week just in my core business operations," said Destynee Turner, Owner of The Optical Experience (a US-based Xero customer).

Interest is building in expanding usage to include bookkeeping, accounting and broader financial management. A significant portion of firms expect uptake in these areas within the next six months.

Growth link

The research points to a connection between frequent AI use and revenue gains. One in five firms report revenue increases over the past year, with the highest growth reported among those most optimistic about AI. Companies using AI daily are more than twice as likely to report revenue growth compared with those that never use the technology.

Businesses expressing strong confidence in AI also show higher rates of revenue improvement.

Barriers to adoption

Concerns about data privacy, accuracy and job displacement continue to limit broader uptake. Data security remains the single biggest issue for many owners, followed by doubts over the reliability of AI outputs. A similar proportion worry that AI could replace human roles.

"Security is an understandable concern when it comes to financial data. I wouldn't export my sensitive data to a public platform like ChatGPT. I place my trust in established enterprise systems such as Xero," said Alan Tse, Owner and Co-Founder of Altina Drinks (a Australia-based Xero customer).

Internal obstacles also restrict progress. Many firms say they have other priorities, while some believe their existing software is sufficient. Others report they simply lack the time to learn how AI could support their operations.

"Small business owners are stretched very thin, and for many, adopting a new technology feels like adding another burdensome task to an already overflowing plate," said Tse.

Time pressures

The report identifies a persistent tension between everyday operational demands and longer-term planning. AI is described as a tool that can reduce administrative workload, helping owners shift attention towards strategic decisions and higher-value activities. This includes drafting communications, preparing financial insights and organising workflows.

"My guidance to any small business owner is simple: Don't be afraid, just use it. This is a tool designed to take the immense burden off the owner who is constantly inundated with working in their business rather than on it – AI takes that load off," said Turner.

Skill shifts

Respondents say AI is helping them generate ideas and communicate more effectively. Many note improvements in written content and reductions in the time needed to begin new tasks.

"A good business shouldn't be fearful and instead must recognise their zone of genius, the complex problem-solving that AI can't replicate. By automating the nonsense, we free people to focus on the high-value work that truly distinguishes us as a business," said Royall.

Trust frameworks

A strong network of trusted suppliers and advisers is seen as essential to safe adoption. The report argues that providers must take responsibility for ensuring data security and validating outputs. Accountants and advisers also play a key role in helping firms check the accuracy of AI-generated information.

"AI adoption is a strategic choice; you either want to take on an operational load that wasn't feasible before, or you want to do less of something that you don't enjoy doing," said Soon-Ee Cheah, EGM of AI Products, Xero.

Policy environment

Regulatory clarity remains an important factor. The report suggests that clearer rules on liability and automated processes would help small firms scale low-risk, rules-based automation.

"De-risking AI adoption requires a policy framework where governments put pro-innovation guardrails in place, but this must involve reforming outdated automation rules, specifically removing legal and regulatory barriers that limit the scope of safe automation we can deliver for lower-value, routine tasks," said Gown.

Future outlook

"We're moving from a world where we had to try and speak the language of computers to one where computers are able to speak the language of humans. This really is driving a fundamental rethink of what's possible," said James Bergin, EGM Technology Research and Advocacy, Xero.