Between SMEs and gig economy workers, entrepreneurs are big business for the U.S. economy. That means accounting software for these professionals is big business, too, with investors placing about $43 million in new funding to one industry player, FreshBooks.
The new funding, announced today (Tuesday, July 18), follows several months after the Canadian company announced its redesign, an initiative Mike McDerment, CEO of FreshBooks, said is part of the accounting software industry’s larger effort to improve usability. Because while the technology available to the self-employed is more sophisticated than it’s ever been, there’s still one massive hurdle the industry needs to overcome.
“I think most people still aren’t using a product like FreshBooks,” he recently told PYMNTS. “As crazy as that sounds, that’s still the biggest hurdle. People are wasting a lot of time, they’re not as organized as a result, they’re not as efficient as a result and they’re not having the edge they need as a result.”
In the North American market, he continued, adoption is especially lagging.
“A change in behavior is the big thing,” McDerment explained. “But we still believe it’s early in the market, for North America at least. The big thing is for the self-employed to start using it. From that, I would say ease of use is another key focus.”
An interface overhaul designed to make it easier for entrepreneurs and the self-employed to actually use the accounting solution may help boost adoption rates. But in a market like the U.S., there are other challenges for the SME accounting software space.
“One, I think, is complexity,” the CEO said. “Frankly, the American market, if you look at a category like payroll, is by far the most complex market in the world.”
And while SMEs are awaiting tax reform, this area also makes the U.S. a complex market in which to operate, both for SMEs and their accountants and software providers.
“That costs American small business owners a lot, but when every state has its own different set of rules, it’s insanely complicated to ... make these products work effectively, to make them easy to use.”
A complicated regulatory environment in the States is also posing as a roadblock for the entrepreneurs themselves. A recent survey from the National Federation of Independent Businesses found that “frustration over gridlock in Washington” forced SME optimism to dip last month. Regulatory policies like tax reform and a boost in infrastructure spend may have small businesses looking up, but if regulators don’t act on those policy proposals, entrepreneurs can’t make moves to grow.
McDerment pointed to healthcare as another example of this pattern.
“There is uncertainty around healthcare and the risks with that,” he noted. “If we roll back healthcare, because these professionals don’t work for an employer, they don’t have the healthcare guarantee. It creates a different risk environment for folks to move forward in.”
“The result of that is you wait a little longer, you hold off, you’re not as certain about investments,” he continued. “It’s a psychological thing, but that’s the nature of the market.”
Exacerbating the challenge of accounting technology adoption is the accounting profession itself.
“The accounting profession seems to be slower to adopt new things,” the CEO explained. “The reluctance of change within this group is something that holds it back.”
But McDerment also noted that today the technologies available to the self-employed are better than they have ever been, meaning these professionals do have the opportunity to overcome some of the market forces that seem to be holding them back from greater accounting efficiency.
The new venture capital funding raised by FreshBooks, too, can help the company overcome those challenges. The Series B funding was led by Georgian Partners, while Accomplice and Oak Investment Partners also participated, and will be used to fuel growth across the North American market, the company announced.
According to McDerment, the venture capital reflects not only an increasing focus among entrepreneurs and small business owners on cash management as they work to grow through political uncertainty and lagging tech adoption, it also signals investors’ faith in the industry to overcome these hurdles.
“Compared to consumer and enterprise, relatively less investment has been made in this market. But what’s happening now, thanks in part to the internet and some evolution in the workforce, there are more people working for themselves and starting businesses,” the CEO said. “Investors are recognizing that this is a huge market breaking out. They’re really doubling down to help further that growth.”