Everyone knows that cash flow is the most common killer for small business. Then why has it taken so long for cloud accounting apps to add this critical function? The short answer is that cash flow is hard to do well, which is good news for cashflow app Float and other dedicated cash flow management tools.
Float was one of the first to join the Xero ecosystem and is in expansion mode. Float has just announced a £1.5 million seed round that will fund 12 staff for an office for Australia and New Zealand based in Sydney. It will be Float’s first office outside of Edinburgh, Scotland.
I spoke with Float CEO Colin Hewitt at Xerocon last year, hours after Xero had announced a basic cash flow feature.
Digital First: So we lined up this interview to talk about Float at Xerocon – and on the same day Xero releases cashflow! What do you think of that?
Colin Hewitt: We’re really excited about it. It’s really good to see this functionality coming to Xero because previously, businesses had nothing. Or there were tools like us that would add a significant cost to their operations and maybe they didn’t need a huge amount (of forecasting). And we didn’t have an entry level offering.
So I think this bridges that gap really well. And hopefully it whets the appetite for businesses as they get ahold of cash flow. And if they think, what more could I do? That’s where we come in.
Digital First: You’re right, cash flow is critical in my business and in every business. What’s been happening at Float? I thought you were going down the ad supported route. And then it seems to have a decent price – starting at AUD$99 a month (US$69 for USA, £49 in UK).
Hewitt: Yes, but not for accountants. If accountants are offering it the price can come down to as low as $29. Or even less when you jump up the bands (in volume pricing). So yes, it’s quite a big difference, depending on whether you come to us directly or whether you go with your partner channel.
Digital First: Okay. It’s quite a lot more than most other things in the Xero ecosystem. What has the reaction been from customers to the higher pricing?
Hewitt: There’s definitely an anchoring in the small business community around the price of Xero. And people often think, well, I pay this much for Xero so I shouldn’t pay any more for anything else. But it was actually Roger (Gregg, chairman of LightYear) who said, right at the beginning, that ecosystem apps should not be the same price as Xero, which has millions of customers. For us to be sustainable, apps need to be charging significantly more.
And we look around at the apps that we use to run our business. We pay hundreds of dollars a month for different products like Intercom or some of the analytics tools that we use. I mean, in a SaaS business you’re paying thousands of dollars a year just for basic metrics tools.
We wanted to see how much value we can save businesses if they’re doing forecasting and spreadsheets – it’s up to eight hours a month that we are saving them. So when you work out the time related costs then paying $99 is nothing.
Digital First: I see Platinum Xero firms are still using Google Sheets and Excel for cash flow because they say that cash flow apps just doesn’t have the flexibility to handle all the variables. What’s your response to that?
Hewitt: Well, I think there’s always a balance between control of the spreadsheet versus the flexibility and power of an app. Because the app can update in real time (from the accounting software), we take away all the margin for error which spreadsheets are very prone to. All that manual updating is huge. We’ve been doing demos all day yesterday and people are saying, “This is actually what my spreadsheet does but you’ve just taken the heavy lifting right of it.”
Digital First: So you still have the flexibility, you can come in and move amounts around?
Hewitt: Yes. Absolutely. So we’ve been working more and more to make our budgeting capacity as flexible as possible. Things like start dates. In fact, you can do a lot more with multiple scenarios. Doing that in a spreadsheet is really hard. You have to open another tab and copy over your budget, or you put in a formula to do this scenario.
Once we have built it in Float, it becomes super easy, like moving expected payments on invoices. For small business to do that in a spreadsheet and not break the formulas, it’s really difficult.
So when you start interacting with a client, having an app that can highlight actions and changes and track all that stuff is so much better.
Digital First: There seems to be a lot of competition in this space. Futrli have released Flow, which – I haven’t seen it, but apparently does something similar. Plus Futrli has the rest of the dashboard product. How do you pitch a point solution like cash flow and differentiate?
Hewitt: We see some apps take the Swiss Army knife route where they’ve got scissors and a toothpick and all that stuff. We just want to be a scalpel for one thing. I think cash flow is one of those things that everybody thinks is important. If you start broadening your focus, it’s really hard – there’s still so much more to do on cash flow. And we’ve got so much we want to add to that, we’re just getting started.
Digital First: So tell us what you’re going to add?
Hewitt: Our whole thing is that businesses don’t have very much time. So how can we remove friction when it comes to cash flow? We’ve recently launched a new onboarding platform for people when they’re coming into the system to set up their budgets and show them how to use the app. It’s making everything so much more streamlined.
We’re looking at things like permissions, audit trails, cash management – more functionality on the cash cash monitoring side, like when am I going to get paid?
We’re adding a lot more granularity about how you set budgets. So we recently launched a multi-budget functionality which allows you to set a much more granular view of the budgets rather than just one budget for your chart of accounts.
We’re moving to a weekly view option as well, and adding more functionality around things like formulas, linking budgets based on other budgets.
We’re thinking about where we go in the next two years. Looking at AI and what we can do in terms of better predictions. Anything which involves cost management is interesting to us. So how do we make that function much easier?
Digital First: What is Float’s customer profile? Do you have any big industries?
Hewitt: We’re finding that we’re really good for anybody in professional services where they’ve got invoices, bills that are lumpy, that come in different times for project based work. In Float you can set scheduled payment dates on single invoices. In that industry, a services firm may take 20% up front and another 50% at a certain stage. Managing cash flow for that can be really difficult.
We’re also popular in dental and medical, it’s a segment that we didn’t expect but it’s really getting traction. Ecommerce is another one and SaaS. And they all use us differently. So for us as a SaaS company we use Float for multiple scenarios to predict runway. And so we were looking at a funding round and we can see exactly when we will run out of money based on our sales predictions. That’s super powerful – trying to do that in a spreadsheet is not fun. Your financial position is always changing depending on what happened last month. So we find that really useful for us.
Coming from an agency background, I was much more interested in when people were going to pay us and what happens if this client goes bust. What if we bring on another two sales people? What if we upped our marketing spend? That kind of thing. Once a company gets to three or four employees, that’s when cash flow starts become hard to manage in your head or on a spreadsheet.
Digital First: How many customers do you have?
Hewitt: We’re currently sitting just under 3,000.
Digital First: Okay, and what percentage of your users use the app themselves rather than with their accountant or bookkeeper?
Hewitt: The last time I checked I think we were about 75% direct. When we were looking at from a product focused view we just wanted to make sure businesses understood it. What we have found is there’s a real disconnect between what accountants thought their customers wanted and what the customers actually wanted. They really didn’t want three way forecasting, they just wanted a view of cash. They didn’t understand any kind of technical language, like AR/AP, debtor days, none of that. It was just like, invoices, bills, when they get paid.
So we’ve really tried to make the app usable for businesses because ultimately, if the business owner doesn’t adopt Float themselves (it’s not going to work). It’s really about us sitting in the middle (between the accountant and business owner) because the business knows a bunch of things that are going to happen. Like, we’re taking on more staff next month, or we’re moving office, or that customer’s gone bust.
The accountant can bring in stuff like your tax payments, or help you review your budgets and work out if you’re underestimating the numbers.
Digital First: Accountants and bookkeepers seem to struggle with monetising a cash flow advisory service. Some people argue that accounting firms should just focus on compliance because there’s still plenty of money in it. Yet Xero has just said that cash flow is the number one concern for small business. So if, as an accountant, you care about customer service, then you’re going to care about cashflow…
Digital First: Clearly there’s an educational issue for accountants. Do they need a go-to-market strategy or help in packaging a cash flow advisory service? How do you fix that if you want accountants to be an effective channel for Float?
Hewitt: Yeah, I agree. Compliance is definitely something that we think accountants need to nail. But we’re starting to see customers coming to us and saying, “We need somebody to help us set this up. Can you help us?” We say no, but here’s a bunch of partners who can. So if you’re only doing compliance you’re going to miss out. When, as you say, cashflow is so important that businesses start to say, “Who’s going to help us?”, they might find another accountant who can. And they will also do compliance and will take over that whole relationship. So I think it’s a risky strategy just to focus on compliance.
We see so many businesses that just really care about cash flow. We’re trying to help educate our partners on how to build a service around it, because it’s not just about adding a fee or getting a cut from the Float product. It’s actually saying, “Here’s how we’re going to do this.”
The Gap guys have a lot to say around this like having an annual review, sitting down with a customer and asking what’s important to them. Then building in these monthly or quarterly checkpoints to review cash flow. Customers will pay for that when they see the value.
So it’s an education piece about how to do value based billing for services on top of what they’re already doing in compliance.
Image credit: Float