The ‘Holy Grail’ Of Small Biz Cash Flow

Only a small portion of micro-businesses will graduate to become small businesses, never mind medium-sized businesses.

And yes, that’s partly because many of these businesses will fail. But according to Wave CEO Kirk Simpson, many simply don’t want to get any bigger than just a handful of employees.

While it’s commendable for a micro-business owner to want to remain small enough to control the books, the fact is, many entrepreneurs are inept when they put on their accountant’s hat. And, truth be told, many of them don’t put it on much at all; while some of them hire a part-time accountant or rely on their financial institution to help, that often doesn’t really cut it either.

“Banks talk about the importance of the micro/small business category,” he recently told Karen Webster. “And I know they mean it – it’s 95 percent of all businesses, and a huge portion of GDP. But it’s incredibly hard to serve them.”

The same issue falls upon that part-time accountant or small business bookkeeper, Simpson added.

“Micro/small businesses might have an accountant at year-end, which means that they do a mad scramble to get all of their documents uploaded and receipts tabulated and bring them to the accountant,” he said, creating an unprofitable mad scramble for the accountant, too.

As SMB-focused FinTechs acknowledge this problem – and the gap it creates – many are starting to collaborate with traditional banks, relying on FIs’ distribution channels to gain the traction with small businesses, while banks are able to supplement their baseline financial service offerings with more innovative, digital tools like invoicing or accounts payable.

Wave’s approach to enhancing SMBs’ handle on cash management is a bit different. As Simpson explained it, WAVE is signing up 60,000 SMBs every month, and as Simpson sees it, can help banks better serve those businesses by doing one very important thing: integrating with WAVE so that financial services features can be baked into the WAVE platform – giving micro/small business owners a single place to do their financial and cash management.

This unified platform keeps all of the data across these metrics in a single place, making it easier part time accountant or bookkeeper come tax time, Sand bringing cash flow predictability much closer to the small business.

Having just raised $24 million in new funding from National Australia Bank and other backers, that’s what WAVE has set out to do, either by creating those services themselves, or through close partnerships with others like banks and FinTechs like OnDeck.

With the new funding, Wave will focus on building out its integrated financial service capabilities, deploying technologies like artificial intelligence to make better sense of all the financial data it captures. And while the startup will continue to connect with small business bank accounts, Simpson said eventually, its integrated offerings could “go all the way to the bank account itself.”

What sets Wave apart, Simpson says, is that its accounting platform was built for the business owner, herself, not her accountant and to have accounting tools and financial management tools living side by side for easier access to the information needed to make relevant financial decisions.

“Today, these worlds are very different, very separated,” Simpson said. “Let’s say the business owner is using Wells Fargo as her bank in the U.S., and she has Wave. I’m also using some type of a data aggregator to scrape data from my bank account and credit/debit card statements and bring it into Wave. We want these two things living in the same environment.”

That means having information related to working capital options, invoicing, payments, and other cash management and accounting functions part of a single platform. Nixing the middle-man that would normally collect data from each of these solutions means getting closer to what Simpson described as the “holy grail” of small business finance: cash flow predictability.

With so many small businesses in the U.S., Wave is attempting to reduce the number of startups that fail because they cannot get a handle of cash flow. That’s a huge pool for Wave: the latest data from the Bureau of Labor Statistics, Business Employment Dynamics found only about 20 percent of small businesses survive beyond their first year.

“Small businesses are churning at a rate that doesn’t need to happen – often times, because of financial illiteracy and cash flow concerns,” Simpson said.

The end-game, Simpson said, is whether Wave can help a small business owner predict future cash flow – look at their previous history and upcoming bills and payroll and outstanding invoices, payables cycles, and actually project, cash flow is and flag cash flow concerns.

To accomplish this, the last few years have seen Wave introduce various financial services products as, Simpson said, it asked why small businesses were forced to find out ways to interconnect all of their sources of various financial data. The answer to that question, he added, is that there is a better way.

“That’s our aim, is to say there’s no reason why these worlds should live separately – in fact it’s acting more friction to small business owners by having them act separately,” Simpson said. “What would happen if you combine these two worlds? If we can bring it all together, we can automate away the pain of accounting, and make the lives of small business owners much more successful.”