Small and medium businesses (SMBs) are often the first to be hit by economic cycles and are more vulnerable to being negatively impacted by financial shifts than larger businesses. The fact that 40% of the total small business population in the UK only has enough cash to sustain their operations for three months will come as no great surprise to anyone working in the field. But how does the new outlook shift how businesses think about their tech?
Less explored than the general travails of being a business owner, our recent research, which surveyed more than 500 founders, owners, and directors at American SMBs, digs into how macroeconomics impacts small businesses’ attitudes towards their financial tools. While the natural assumption is that in a challenging economic environment, SMBs would be cutting back on software to save on costs, our research shows that the opposite is true.
Two-fifths (40%) of the SMBs surveyed plan to update their tech stacks to beat the current economic challenges. Of those adapting their approach, changing suppliers/ buying new software, seeking time savings, increasing reliance on software used to manage finances, and choosing tools that integrate with each other were all more common reactions than cutting software to save costs.
What does this mean for providers and how should they react? In short, leaning in to build more value-add features is going to be more successful for providers than simply cutting costs to be able to pass savings onto customers.
One critical role that fintechs can play is providing technology that enables SMBs to monitor and better understand their finances. This flow of data and connectivity between services is critical to enabling SMBs to get the greatest possible value from the numerous platforms they use, now and in the future.
A great example of a fintech providing cross-platform connectivity is Nuula, a super app which tracks key business metrics. By connecting a business’s key financial information – such as its accounting platforms, business bank accounts, and commerce platforms – the app gives SMBs the ability to forecast cash flow, track sales, spot customer trends, and more. This is invaluable as businesses look to cut back costs while also capitalising on emerging business opportunities.
Square, the leading point-of-sale and ecommerce platform, is another great example of a fintech integrating real-time data insights to deliver more value to SMBs beyond their core value proposition, accepting payments. Square’s analytics feature includes sales trends over time, insights on returning customers, and the performance of each product. But they could go further by integrating data that reflects business spending. Providing a balanced view of ‘money out’ as well as ‘money in’ is the missing piece that would give businesses better clarity.
Increasing connectivity between different platforms also helps owners and founders claw back their time, a challenge that 42% of SMBs are turning to technology to help solve. Among the SMBs we spoke to as part of our tech stack research, accounting and bookkeeping tasks specifically represented the biggest drain on their time and, therefore, the biggest opportunity for providers to introduce time-saving features.
Building integrations to accounting & ERP software to sync payment transactions from tools like corporate cards, point of sale, or ecommerce platforms, substantially reduces the admin burden for business owners. It not only eliminates the need to manually enter data but creates a more up to date, accurate view of financial position within the accounting software, for more informed decisions.
The reality is that for many small-to-medium-sized companies, growth is no longer on the short-term agenda. Instead, most companies are focused on shoring up their business to help them weather the storm, and increasing numbers are turning to tech to help them do so.
In this context, messages like 'accelerate business growth' or ‘extend your customer base’ will appear tone deaf. We’ve seen tech providers using Codat instead adapt to messages like 'save time and save money' or ‘help retain customers during challenging times’. At the time of writing, for example, expense management solution, Ramp, uses the headline ‘extend your runway’ front and center on their homepage, aiming to appeal directly to startups experiencing a more challenging venture capital market.
In the current business environment, the fintech industry is in a prime position to support SMBs through integrated digital systems and automated data flows – and in addressing small businesses’ immediate concerns, they’ll also help themselves navigate the choppy waters.
About Peter Lord
Peter is CEO and Co-Founder of Codat. Having previously worked as a Software Engineer, Peter came to the realisation that financial integrations had the potential to transform the small business landscape, but that they were challenging and time-consuming to develop. He co-founded Codat to directly address this challenge, and under his leadership, the company has grown to serve over 200 clients globally, including five of the world’s top financial institutions and 12 tech unicorns. The company has more than doubled revenue and headcount each year since its launch in 2017, and in 2021 grew revenue and headcount by 250%.
About Codat
Codat is the universal API for small business data. It provides two-way connectivity to over 30 different accounting, banking, and commerce platforms used by small businesses. The company is facilitating the next generation of SMB financial services and products globally by enabling financial services companies to build connected products for SMBs by easily integrating with their accounting, banking, ecommerce, PoS, and payment software.
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