October 24, 2016

Small Business Accounting Grows Up … And Other 2016 Trends

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The year 2016 will be the year that small business owners no longer need to hear “move to the cloud.” Why?

It’s because small businesses are already deep into the cloud.

In fact, today’s younger entrepreneurs may not even remember a time when most software came in boxes.  All they know is software accessed through a Web browser or mobile app, i.e., software in the cloud.

That insight and more came from Russ Fujioka, the U.S. president of Xero, the small business accounting software.

Xero, headquartered in New Zealand, entered the U.S. market a few years ago.  Since then its accounting software has been growing in popularity with small businesses.

Xero’s popularity is based on having a simpler, easier approach to small business accounting.  Instead of forcing you to use complex accounting functions if you don’t need them, Xero streamlines things. Xero wants to make keeping your books easier.

I sat down with Mr. Fujioka via the phone recently to get his take on the small business accounting landscape in 2016.  Here are key trends he pointed to:

Trend: Small Businesses Have a Huge Advantage With the Cloud

“The reality is, I think we’re going to come to a part of the adoption of cloud where you’re just not going to have to put the word ‘cloud’ in front of it. In fact, I’m not sure people understand when they’re in the cloud or not in the cloud. You would be hard pressed to spin up a piece of small business software today that was not cloud based.  When I’m asked about where is cloud accounting going, I’m saying it’s just ‘accounting,’” observed Fujioka.

These days the move-to-cloud message is driven by “big business” issues.

There’s little need to counsel small businesses to move to the cloud. Big businesses are the ones struggling with the cloud.

In fact, small businesses have a huge advantage over big businesses when it comes to the cloud, Fujioka said.

“Cloud software applications are absolutely a weapon for small businesses to become more successful on a wider scale,” Fujioka pointed out.

“The reason I say that is I came from a big business past.  Most recently I came from a venture firm, but I also ran global marketing for Dell for four years. That is a $62 billion company that is selling hardware for on-premise, private cloud implementations to large Fortune 1000 and Global 1000 companies. Those big companies will actually migrate to pure public cloud much slower than a small business. They have a lot of on-premise hardware and software to migrate. That legacy always holds back large businesses,” he said.

According to Fujioka, “For large companies, transitions to the cloud are hard. They’re painful.”

Those transitions are also expensive.  He points out that the cost for large companies to transition to the cloud is measured in hundreds of thousands of dollars — or more.

Small businesses, on the other hand, jump into the cloud for tens of dollars.

Following his reasoning, it’s a great time to be a small business.

“In some cases small businesses today have access to more robust and better software than their larger counterparts.  And that software is very very affordable,” added Fujioka.

Trend: Small Business Accounting For Startups in Every Stage

Fujioka touched on another prevalent trend today about how companies start up and grow.  Today’s entrepreneurs need tools that grow with them.

Take the example of someone who works for a plumbing company.  Fujioka pointed out a common scenario. One day that person decides, “‘I’m not going to be with that plumbing company; I’m going to be the plumbing company.’ So they invest in a truck, and they become John Smith Plumbing. That’s when you get into the central strength of what Xero as an accounting and business platform does for them,” he said.

Xero breaks down accounting into different types of functions.  Startups and small businesses at different stages may need different functions.

“We look at what we would call a pre-accounting type of functionality, an accounting functionality, and a beyond-accounting functionality.”

“In the instance of the plumber, for example, a pre-accounting functionality you might think of as invoicing. There are some companies that just need invoicing. One of the most important things for cash flow is bill your client. Odd as it sounds, some small businesses sometimes just don’t bill. They don’t ask for the money. They lose track of that. Xero is designed to help get paid.”

Xero also offers the second piece for businesses that are a bit further along.  It’s what Fujioka calls “a really robust, double-entry single-ledger accounting platform.”  Keeping accurate accounting records may also involve working with an accountant.  If you work with an accountant, Xero makes it easier, Fujioka said.

“The beyond-accounting part is when you start talking about CRM and insights. It’s the ability to look at dashboards and analytics for your business.  So you can ask, ‘How am I doing as a ratio of  cash flow?’”

“If it looks like cash is going in a bad direction, I can ping my accountant and ask if they’ve seen this and what they believe I need to do about it.”

Trend: Accounting Software Evolving Into Small Business Platforms

Cloud applications for small businesses are becoming much more than pieces of single-purpose software.  Fujioka predicts they will evolve into small business platforms.

“What’s happening is not so much that it’s cloud accounting, but I do believe that these are becoming small business platforms.  What I mean by that is most of the new software to run your business is based in the cloud. The software is offered on a per-glass basis, meaning that you’re just paying for it as you use it. Or you’re paying for it on a commitment time frame of 30 days. That means that the ability for a software application to become a small business platform vs. an accounting platform is the next direction you will see.”

Being in the cloud makes it easier for one application to integrate with other applications.  String them together with add-on functions and they become a platform to run your entire business off of. It’s no longer just a piece of software to perform a single function.

Trend: A Workforce That’s Changing by Habit and Lifestyle

The small business landscape is changing in fundamental ways.  It’s not your father’s small business any more.

Today it’s easier to hire a workforce.  And its easier for free agents to find work.

“We’re seeing trends that technology has enabled. One of them is globalization of the workforce. You have the ability to get your workforce from anywhere in the world, and find skill sets beyond your geography. But I also think that the composition of the workforce is changing,” he said.

Today people may decide to work part-time instead of the traditional full-time. They may choose to do what they love or whatever fits their life needs at a particular stage

He pointed to people who decide to earn money as an Uber driver, as a Lyft driver, or put their properties out on AirBnb. “There are things that are enabling people to be landlords and chauffeurs and temporary workforces. This means a couple things. It means small businesses have greater access to finding the right people at the right price.”

The other thing, Fujioka said, is when companies like Xero provide a small business platform integrated with a wide variety of other applications, you as the user have more flexibility. As your business grows, you can select the added tool you need. And only when you need it.  

“Right now the ability to run self-service payroll, to have everything that you need to comply and your ability to pay that employee, is resident in our small business platform software. For example, Xero includes up to five employees in our standard edition. You can build your business on Xero and manage your first five employees without additional fees. Beyond that, if you decide at some point to offer benefits, you could add a Zenefits where it’s ‘pay by the glass’ to deliver benefits to employees.”

Trend: Small Businesses Concerned About Regulation

The final trend Fujioka pointed to is the growing concern of small business owners over regulation and compliance.

“One of the biggest pain points for small businesses has to do with the expenses that they’ll see, the regulation, the cost of labor.”  

But you have to be pragmatic as a business owner. 

“You’re not going to be able to move the government. You have to make your business grow in the presence of government regulation and compliance issues. Knowing that, there’s a lot of compliance automation that we’re building into Xero. Whether that’s from an HR management standpoint, to how do you run 1099 employees vs. W-2 employees, to how do you deal with state taxes and E-file — we take care of a lot of that for you. Xero aims to help keep you out of trouble on those things,” said Fujioka.

Digital Background graphic via Shutterstock  Fujioka headshot, logo courtesy of Xero.

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Anita Campbell - CEO

Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

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2 Reactions

  1. Why not go one step further and upgrade your point-of-sale? Pose point-of-sale is a cloud-based cash register exclusively designed for small businesses. In addition, Excel reports can be exported from Pose in XERO format for easy upload into your XERO accounting software.

  2. Aira Bongco

    Right. I think that the adoption of the cloud is actually quite fast. I guess it is because people are already used to saving their files on folders that saving to the cloud doesn’t feel as new.

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