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 industryâs larger effort to improve usability. Because while the technology available to the self-employed is more sophisticated than itâs ever been, thereâs still one massive hurdle the industry needs to overcome.
âI think most people still arenât using a product like FreshBooks,â he recently told PYMNTS. âAs crazy as that sounds, thatâs still the biggest hurdle. People are wasting a lot of time, theyâre not as organized as a result, theyâre not as efficient as a result and theyâre not having the edge they need as a result.â
In the North American market, he continued, adoption is especially lagging.
âA change in behavior is the big thing,â McDerment explained. âBut we still believe itâs 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.â
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.
âOne, I think, is complexity,â the CEO said. âFrankly, the American market, if you look at a category like payroll, is by far the most complex market in the world.â
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.
âThat costs American small business owners a lot, but when every state has its own different set of rules, itâs insanely complicated to … make these products work effectively, to make them easy to use.â
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 âfrustration over gridlock in Washingtonâ 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 donât act on those policy proposals, entrepreneurs canât make moves to grow.
McDerment pointed to healthcare as another example of this pattern.
âThere is uncertainty around healthcare and the risks with that,â he noted. âIf we roll back healthcare, because these professionals donât work for an employer, they donât have the healthcare guarantee. It creates a different risk environment for folks to move forward in.â
âThe result of that is you wait a little longer, you hold off, youâre not as certain about investments,â he continued. âItâs a psychological thing, but thatâs the nature of the market.â
Exacerbating the challenge of accounting technology adoption is the accounting profession itself.
âThe accounting profession seems to be slower to adopt new things,â the CEO explained. âThe reluctance of change within this group is something that holds it back.â
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 investorsâ faith in the industry to overcome these hurdles.
âCompared to consumer and enterprise, relatively less investment has been made in this market. But whatâs happening now, thanks in part to the internet and some evolution in the workforce, there are more people working for themselves and starting businesses,â the CEO said. âInvestors are recognizing that this is a huge market breaking out. Theyâre really doubling down to help further that growth.â