The multi-currency imperative for SME

by admin on March 12, 2012

in Cloud Computing/SaaS

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:

  1. take share from Sage
  2. expand into overseas territories
  3. 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.

Comments on this entry are closed.

Paul Bulpitt (@pbulpitt) March 12, 2012 at 8:26 pm

RT @dahowlett: Fresh content: The multi-currency imperative for SME http://t.co/VdStf1d5 #cloudcomputingsaas

Joe DeFilippo (@SaaSAccounting) March 12, 2012 at 8:47 pm

The multi-currency imperative for SME: The vast majority of people who use SME finance solutions only need to ma… http://t.co/JQiOKKJM

garyturner March 12, 2012 at 9:03 pm

Dennis – a (well) educated guess is that Sage Instant and Sage 50 have around 150k customers each, give or take 20-30k. So, it’s arguable that circa 300k out of a pessimistic 1-1.5M is a fair chunk after 30 years in market.
 
The fact that Sage is comprised of probably 100+ global (indigenous) products is a function of the native origins of software development in the 1980′s before the web emerged. Both the geographical redundancy and the platform redundancy brought about by the emergence of the web both draw into question the sense of replicating the land-locked go-to-market strategies of the 1980′s, even if it is justifiable on the ground of being easier to achieve. The fact is no new market entrant would build discrete, separate web based products for different countries to replicate history, so the inverse assumption is interesting; why would a web based vendor limit their market to a single country. 

dahowlett March 12, 2012 at 9:56 pm

 @garyturner you’re missing my point methinks. Sage numbers may be as you suggest but their revenue share is way more than current cloud/SaaS providers can garner.
 
I can give you companies that have handfuls of customers by that reckoning that are already looking at forward revs of $200-300 million.

Michael_Wood March 12, 2012 at 9:27 pm

Dennis – Hi – Michael from Receipt Bank here.
 
Very interesting post.
 
In Receipt Bank we store all transactions in both their original currency and, as you say, a base currency. All data can then be exported to bookkeeping software either in its native currencies or in the base currency (depending on what is allowed by the bookkeeping software).
 
We have a number of additional features already planned to further improve our multi-currency capabilities, but any suggestions you have for what a solution such as ours could/should be offering would be very welcome.

dahowlett March 12, 2012 at 9:53 pm

 @Michael_Wood I need multiple ‘base’ currencies – but then so do the accounting packages

Jason Currill (@ospero_JasonC) March 12, 2012 at 9:28 pm

The multi-currency imperative for SME – The vast majority of people who use SME finance solutions only need to manag… http://t.co/S5qsPx1F

greg_not_so March 13, 2012 at 12:06 am

who would want to change this?
 
*   Wenn Skalierung und Konsolidierungswaehrung gewaehlt wurde
*   werden die Betraege in der im Parameter ‘Konsolidierungswaehrung’
*   gewaehlten Waehrung gemaess Skalierung ausgegeben.

dahowlett March 13, 2012 at 12:10 am

 @greg_not_so @Greg – you arse – according to Babelfish this says:
 
If scaling and consolidation currency were selected * become the amounts in the parameter the ‘ Konsolidierungswaehrung’ * selected currency in accordance with scaling spent.
 
Right…clear as fugly mud

greg_not_so March 13, 2012 at 1:05 am

 @dahowlett   Konsolidierungswaehrung is group currency (30) and scaling deals with rounding, which you can’t avoid when ‘translating’. they are both baked into the F.01 transaction which is the trial balance in R/3>ECC>BS>HANA>tbd….

greg misiorek (@greg_not_so) March 13, 2012 at 12:06 am

I just left a comment in “The multi-currency imperative for SME” http://t.co/3Fu8Suox

Stuart Jones (@StuartJones) March 13, 2012 at 11:18 am

The multi-currency imperative for SME http://t.co/dTXwmvSm via @dahowlett

clive boulton (@iC) March 19, 2012 at 6:48 am

The multi-currency imperative for SME is ripe pickings for vendors outside the USA. There’s little grip on multi-currency here. To appreciate the conversions and timings requires exposure to a proper trading nation not a mono-currency country. Alas surprise is no one appears to be architecting a polystore graph database solution to simplify holding multiple base currencies matching Dennis imperative.

Steve Brett March 30, 2012 at 11:58 am

The multi currency initiative will be key for many SMEs. Even in the US, where historically the ability to buy and sell abroad using the dollar has protected people from pesky foreign money, companies may be compelled to work in multiple currencies to make life easier for their customers.

Having a “base” currency reflects the model where companies bring home all their profits but increasingly we will see SMEs participating in multinational supply chains where they will want to manage a number of currencies and move funds between different “pots” to reflect the flows at the time.

So as well as multi currency we need to see how we can give SMEs the tools that used to be the preserve of the multinationals so they can not only manage the pots of different currencies but also be aware of the currency risk they are carrying and then manage it.

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