B2B Payments

Accelerating Financial Reporting, From Monthly Reports To Real-Time Analytics

In today’s fast-paced business environment, the mad dash at the end of every month to close the books is hardly beneficial to today’s entrepreneur – or her accountant.

According to Kurt Rathmann, CEO and founder of SMB accounting firm ScaleFactor, the month-end close may be the traditional way of doing things, but it forces small business owners to examine data that, by the time a financial report is completed, is too old to be of much use.

“In the simple accounting environment, you get a financial statement at the end of every month, the data of which relates to last month,” Rathmann said in a recent interview with PYMNTS. “The news is about 30 days old at best.”

For the small business accountant who is now facing pressure to not just close the books, but to play the role of advisor, the 30-day data cycle isn’t doing any favors, either.

“Because of this 30-day closing time frame, what happens for a typical accountant is that the first 10 to 15 days of the month are crazy busy,” the executive explained. “That forces the accountant to get into a phase of just trying to get it done. There are long hours, they’re not making it home for dinner, they’re just trying to complete the work. Proactive, forward-looking insight falls by the wayside.”

A younger generation of entrepreneurs, coupled with heightened expectations for speed, means this monthly pattern is no longer cutting it. As small business owners demand that accountants play the role of advisor, they’re also looking not only for analysis of financial data, but to have that insight provided in real time, said Rathmann.

But access to real-time data is one of the largest pain points for SMBs and their accountants, he said.

“Small businesses are in need of more real-time information,” he said, adding that managing cash flow is a day-to-day feat, not something that needs attention only once a month. “If you can speed up the data, it gives you better insight into your business. The data cycle gets cut from 30 days to just one or two days, and the business owner can really dictate some future actions they’ll make, and tactically navigate the business, rather than just react to it.”

Use cases for data analytics are practically limitless, but one area that Rathmann said is key to the small business is being able to benchmark financial positions and compare data to industry peers.

“As an example, I’m spending X amount on IT costs per year,” the executive offered. “Is that above normal? Is that below normal? Should I be managing this number, versus saying, ‘Okay, this is in-line?'”

Accountants, when armed with real-time data, can certainly provide that insight, as well as offer forecasting and other crucial information for small business owners to make decisions in the moment. But the role of accountant is changing, and according to Rathmann, the standard relationship between small business and accountant isn’t necessarily that great.

“A lot of people dread interacting with their accountant, for whatever reason,” he said. “We’re really trying to change that.”

For ScaleFactor – which recently announced $2.5 million in seed funding provided by Next Coast Ventures, Techstars Ventures, Firebrand Ventures, Matchstick Ventures, Edison Factory and Flyover Capital – that not only means using machine learning for real-time analysis of financial data, but it also means being incredibly tactical in how that analysis is delivered, based on the way a small business wants to interact with accountants and accounting software.

“We’re changing the way the small business interacts with accountants by using chat, by texting, by sending real-time notifications through the software,” said Rathmann, adding that much of the funding ScaleFactor received will go toward developing a “conversational” user interface.

“What we find is, when a small business owner has a question, they want to text somebody. When they’re in a meeting and they have a question, they want to figure out the answer in the meeting – they don’t want to have to wait 24 to 48 hours for their accountant to get back to them,” he said.

Additionally, the CEO said, the company is taking into account the time at which these notifications are delivered, not just the channel. Vital alerts will be sent via text, while messages that aren’t as urgent and that come in the middle of the night can be sent via email, Rathmann noted. The company uses machine learning and will enhance its focus on artificial intelligence as part of the effort to achieve a more conversational interaction with SMBs.

While this focus on real-time analytics and updated interactions between accountant and small business is partly a response to a younger generation of entrepreneurs, Rathmann also said that it’s a reaction to broader trends among small business owners.

“It’s a response to a younger generation and less personal relationships that are part of a millennial-type generation,” he said. “It’s also that people are less patient for access to data and to information that is theirs. If there is something financial-related to their business, it’s very personal to entrepreneurs and small businesses. It’s more of, ‘I want it now,’ and, ‘Why can’t I have it now? I’m supposed to have it now.’ That’s a lot of the reactions we get in the connected world we live in. People expect faster.”

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