The vast majority of people who use SME finance solutions only need to manage one currency. A significant though small proportion need more than one, often two or three currencies. The expectation today is that financial solutions will handle these seamlessly. Unfortunately that is not the case. I’m not pointing finger particularly but I do think this is an issue that is going to increasingly become central to the ability of a vendor to substantially grow their business. You might ask ‘so what?’ when you are not affected.
As things stand today, I reckon that the current crop of pure play accounting vendors (for example) will need to have close on a million paying customers each before they become genuine leaders. Even at those levels they’d likely only be generating £120-140 million a year in revenue based upon today’s average selling prices achieved in the market. Wow! you might think. Compare that with Sage.
The last time I recall Sage breaking out UK figures was 2009. At the time they reported £121.7 million for the half year. Sage has many products to sell in the domestic market so a like for like comparison is unfair. But watching how Xero, Twinfield, e-conomic and BrightPearl as examples that have quickly internationalised operations it is clear their model demands a response to non-domestic customers that find them over the Internet. Freshbooks has long claimed that 8% of its customers come from the UK. That’s got to be in excess of 100,000 users. The players have always said the domestic market is large enough to support their offerings. I don’t believe that’s true because I don’t believe the market is going that way.
Depending on whose numbers you choose to believe, the gross total market UK opportunity is as high as 4.5 million SME businesses. The real opportunity is more likely to be in the 1-1.5 million range. Sage has already scooped up a good chunk of the total market so in order to be successful one of three things needs to happen:
- take share from Sage
- expand into overseas territories
- expand the portfolio of offerings
Having as many as 100,000 UK paying customers, which is readily attainable by at least three of the vendors is not going to be enough based upon today’s numbers. What has all this got to do with multi-currency?
Fifteen years ago when I offshored myself, all revenue was in a single currency. Today it is in at least two with expenses usually in three but increasingly five or six currencies. That’s way better than the days when I had wee piles of 13 currencies but it’s still a pain. For me, expense management is a BIG deal and what’s more, with highly volatile currencies I’d really like to hold both receipts and payments in at least two currencies. That’s nigh on an impossibility in the books and records. I’ll get to this shortly.
Vendors like ReceiptBank, (link includes referral code from Wow Company) referenced on Emily Coltman’s excellent intro to FreeAgent last week caught my eye. The Wow Company bigs them up and on the face of it you’d be hard pressed to think this is anything other than a top class service. The potential to save £1,110 pa has got to be good in anyone’s language. Having tried to keep track of expenses over two weeks in four countries, I know how valuable this type of service can be. But…when you go to the ReceiptBank Q&A, they don’t handle multiple currencies particularly well. They do the best they can for today but what they are really doing is maintaining a single ‘base’ currency. It can be changed but that’s a kludge. Even then, there is the question about how the transactions get handled once they hit the accounts.
From everything I have seen to date (please someone tell me I am wrong) you can eventually work out what the accounts should look like in your reporting currency. But – you cannot maintain multiple currencies through which you are trading and/or expensing costs. Again, you might think – so what? These solutions are for small businesses. I say – so what? I am a small business but I have the problem as I suspect many thousands of others do. More important, this is an operational issue. While many comment on the fact these solutions are small book-keeping solutions they have at their heart the notion of managing your business. Add in the fact these vendors have to expand overseas in order to remain relevant and you quickly see how multi-currency handling that reflects operations is something that ALL vendors should be treating seriously and urgently.
Customers will pay a premium for this. Already we see that ReceiptBank wants £10.99/month for its service when the market benchmark for an accounting/book-keeping solution is in the £10-15/month range. That gives you an indication just how important this functionality is to people in business. It is classic value add.
When will the accounting vendors step up to the plate and realise that what was once innovation may well be lost if they forget why they started in the first place. The accounting systems of tomorrow are NOT going to be like the ones of today yet it is all too easy to get sucked into the debit/credit accounting driven vortex and then wonder why people complain.
What worries me more is that the pace of innovation appears to be slowing down. Despite the fact the vendors push out multiple releases each year, I’ve not seen much that makes me go WOW in the last six months or so. This is one area where I guarantee they could score massively. The vendor that plays this one correctly has a genuine shot at making itself far more attractive than others.
I’m perfectly well aware that this introduces a significant level of architectural and programmatic complexity. But then that’s what innovators thrive upon – big hairy problems.