The 38.4% Cloud Accounting Era: 3 Reasons Why SMEs Can't Escape Paper-Based Accounting for 10 Years

A survey released by MM Research Institute in April 2026 revealed that the usage rate of cloud accounting software among sole proprietors is 38.4%—an increase of only 0.1 percentage points from the previous year (38.3%), indicating a state of near stagnation. On the other hand, according to the latest survey by Teikoku Databank, 88.8% of companies are planning IT investments between 2025 and 2026, with 'accounting, expense, and financial systems' being the most frequently adopted. There is a high willingness to invest and the challenges are clear, yet implementation is not progressing. Based on my conversations with business owners, I will outline the three reasons why they cannot escape paper-based accounting.

The 'Gap Between Investment Willingness and Implementation' Shown by the Numbers

First, let's look at the latest figures.

[Cloud Accounting Software Usage Status]

• Usage rate among sole proprietors: 38.4% (previous year 38.3%)

• Usage rate among side-job/real estate rental income earners: 33.9%

• Strengthened tax incentives to encourage digitalization in the 2027 income tax filing (2028), expected to reach 40% in the near future

• Source: MM Research Institute 'Survey on Cloud Accounting Software Usage (as of end of March 2026)', published April 2026

[Cloud Accounting Market Share for Sole Proprietors (as of end of March 2026)]

• Yayoi: 54.0%

• freee: 25.1%

• Money Forward: 15.7%

• Top 3 companies account for 94.8%

[Corporate IT Investment Trends]

• Companies investing in IT in 2025-2026: 88.8%

• Most frequently adopted system: Accounting, expense, and financial systems

• Main purpose of IT investment: Hardware updates 69.3%, software updates 52.6%

• Source: Teikoku Databank 'Survey on Corporate IT Investment Trends', September 2025 survey, 1,035 valid responses

As of the time of writing this article, about 2 years and 4 months have passed since the full mandatory enforcement of the Electronic Book Preservation Act (a law requiring the electronic storage of transaction data exchanged on paper) (full enforcement date: January 1, 2024). Nevertheless, the 'Survey on the Actual Status of the Invoice System, Electronic Book Preservation Act, and Back-Office Operations in SMEs' conducted by the Tokyo Chamber of Commerce and Industry from May to June 2024 showed that the smaller the scale, the higher the percentage of companies that 'do not understand the system well and have not yet responded.' In the same survey, 15.7% felt their workload 'increased significantly' and 51.9% felt it 'increased somewhat,' with a total of about 70% feeling an increase in burden. They have the intention to invest and understand the necessity of responding, but it does not progress. I believe this is not a matter of the business owner's ability, but a matter of structure.

3 Reasons Why SMEs Cannot Escape Paper-Based Accounting

Based on the management consultations I have received, I will share the three structural reasons why paper-based accounting persists.

First, the personalization of accounting tasks.In many SMEs, veteran staff who have handled accounting for years hold the keys to the 'paper flow.' When invoices arrive, who approves them, which drawer they go into, and when they are reflected in journal entries—this tacit knowledge exists only in one person's head. Switching to cloud accounting means first verbalizing all of this tacit knowledge. This is heavier than one might imagine.

Second, the relationship with tax accountants.The tax accounting firm you have worked with for years may not necessarily support cloud accounting. From a business owner's perspective, it is difficult to say, 'Doctor, I'm switching to freee.' If the tax accountant lacks knowledge of cloud implementation, they tend to recommend maintaining the status quo. While selecting accounting software and signing a tax advisory contract are theoretically separate matters, in reality, they are strongly linked.

Third, the lack of visualization of overall business operations.Accounting is at the end of a company's business flow. Sales creates a quote, the field team delivers, invoices are issued, payments are confirmed, and then it is recorded as a journal entry. Without seeing this entire sequence, it is impossible to judge where to start the transition to the cloud. Even if you hear that 'cloud accounting makes things easier,' you cannot imagine which of your company's tasks will change. Therefore, you cannot take action.

My Perspective: You Will Always Fail If You Get the Order Wrong

What I always tell people during cloud accounting implementation consultations is, 'Do not decide on the tool first.'

When talking to business owners, I feel that discussions about tool implementation often start with 'a tool proposed by a DX consultant,' 'a tool eligible for subsidies,' or 'a tool used by industry peers.' However, if you introduce a tool without seeing the flow of operations, you will end up either forcing your operations to fit the tool or simply not using the tool at all.

I believe the order should be reversed.

Here is an example of the order. First, organize operations (visualize the flow of work and the people responsible), next, identify issues (identify where time is being spent and where tasks are becoming personalized), then select a tool (choose a tool that fits the solution to the problem), and finally, design the operation (decide who, when, and how to use it). By proceeding in this order, it becomes less likely that you will think 'this isn't what I expected' after implementing the tool. Since I launched ShakeHands LLC in December 2025, I also had a period where my corporate and personal accounts were not completely separated. Even if you just install a tool before the accounting flow is solidified, the operation will not work in the end. I feel this experience is exactly the same as that of SME owners. Cloud-based accounting is not just a software replacement; it is an inventory of your business operations itself.

I believe that the reason many companies in Teikoku Databank's survey answer that 'accounting software is most useful' is only because those companies organized their overall business flow first. Even if they install the same software, there are companies that can master it and companies that cannot. I believe the only difference is whether 'visualization of operations' came first.

Has your company ever written down the flow of your accounting tasks? Before giving up by saying 'we are analog,' try writing it down once; you will see more clearly than you thought which parts can be 'cloud-enabled' and which parts should be done by people.

Summary

The figure of 38.4% for cloud accounting does not reflect a problem with tools, but rather a problem with the business structure of SMEs itself. I believe that what bridges the gap with the 88.8% investment appetite is not the appearance of new tools, but the presence of an external partner who can help organize operations first. Organize the interests of the accounting staff, the tax accountant, and the business owner, and verbalize the business flow. It is unglamorous, but if you skip this, paper will not decrease no matter how many times you change tools. For business owners who are thinking of getting it done by next year's tax return, please start by taking an inventory of your operations before selecting a tool.

ShakeHands LLC
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