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How FinTech Helps SMBs Get A Grip On The Numbers

Financial management is mission-critical to the health and vitality of small business (SMB), but it’s also one of the most difficult tasks for entrepreneurs and business owners that may have the skills to launch new products or services, but lack the accounting expertise to handle the numbers.

Bookkeeping is at the core of many essential processes in the back office: tax filing, working capital management and access to financing, to name a few. Yet, without a solid understanding of underlying data, business owners will struggle to move forward.

Felix Rodriguez, founder and CEO of small business accounting and financial management startup Back Office, spoke with PYMNTS about some of the core functions of financial management that can crumble under the weight of accounting challenges.

“Whether it’s to get a loan or an investor, or simply to know how well a business is doing, it’s mission-critical to know your numbers,” he stated.

Today, some of the largest finance-related burdens on SMB owners are things like filing taxes, which Rodriguez noted has been made even more complex, thanks to changing tax regulations and the complexities of categorizing expenses properly.

In the case of accessing capital, the Federal Reserve‘s latest analysis has suggested that small business demand for financing in the U.S. is on the rise, as companies look to build revenue and boost hiring. Rodriguez said that understanding financial health is an important part of developing a financing strategy, and knowing how an entrepreneur can grow their business outside of using personal credit lines or credit cards.

Though Back Office is strictly an accounting startup, the company plans to introduce new functionality to its offering, including credit and bill payment. The firm secured $1.8 million in Seed financing from Active Capital and other investors in a round announced earlier this month. As Back Office builds out its solution, Rodriguez said one of the largest challenges for the firm will be choosing between the “build or partner” routes: developing solutions in-house or collaborating with industry partners to connect joint customers to a broader range of solutions.

With that in mind, the integration of various products and platforms will also be an essential strategy for Back Office, and is reflective of SMB accounting technology’s bigger shift to meet demand for more holistic services that communicate with each other. Not only do small businesses want automated accounting, access to capital and other value-added tools, but they want these services to be integrated.

Indeed, integrating various apps and platforms was cited as the largest focus of technology investments for small businesses recently surveyed by CompTIA. Accountants and accounting solutions must address this need, too.

There is also the demand for the industry to embrace small businesses’ need for automation, coupled with more strategic advisory services. With FinTech providing accountants with the grip they need to get the books in order, and assess financial health for small business clients, the surge of FinTech has introduced changes to the accountant’s role.

Marrying Tech With Accountants

These struggles are shaping the accounting technology landscape, as well as the relationship between technology and human accountants, as the sector looks to ease the pressure of number-crunching and financial analysis from small business owners’ shoulders.

Much of the upheaval of the traditional accounting landscape stems from the introduction of automated technologies. At first, their entrance threatened the future of the human accountant. Today, many industry players say that technology and human expertise can coexist.

While Rodriguez said he agrees with that, he emphasized that human expertise is itself an essential influence on the development of FinTech for small businesses.

“A lot of work today is using machine learning to learn from the experience that humans have in terms of their deep accounting knowledge,” he explained, adding that that expertise includes everything from core accounting knowledge to finance, economics and the “basic principles of running a business.”

That human expertise can guide the evolution of technology and software, enabling business end users to obtain that knowledge without the price tag.

“It’s about being able to leverage the knowledge of a CFO without having to spend $150,000 [or] $200,000 to have one on payroll,” Rodriguez added.

While sophisticated technologies like machine learning and artificial intelligence may be able to obtain the expertise of humans, he noted that technology and accountants need to coexist — and, indeed, can operate in a mutually beneficial relationship. Where the technology becomes more powerful at absorbing intelligence provided by humans, accountants can meanwhile become more efficient at their jobs and provide the advisory services small businesses need.

It’s where the industry is headed, he said, and is crucial for the businesses that cannot otherwise afford an expensive in-house CFO or IT team.

“That’s where we see traditional accounting firms lacking,” Rodriguez said. “It’s the marriage between accounting and technology.”

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