After Embedded Payroll: Why Embedded Accounting Comes Next

The vertical SaaS landscape continues to evolve, with embedded payroll gaining widespread adoption among platforms and their customers. While platforms focus on implementing and refining their payroll offerings, there's a compelling case for considering embedded accounting as the next strategic addition. For small and medium-sized businesses (SMBs), embedding accounting could fundamentally improve how they manage their financial operations, while creating new revenue opportunities for platforms.

Lessons from Embedded Payroll's Success

The success of embedded payroll supports this direction. Adding in payroll or any major functionality into your platform typically follows these options: build, buy, or partner. However, embedding is a fourth option that has the highest product control, easiest to maintain, and has high customer value.

Gusto's observation that embedded payroll "changed the way SMBs approach payroll" illustrates the impact of integrating core financial services within vertical SaaS platforms. The rapid emergence of providers like Check, Gusto Embedded, Salsa, and Zeal demonstrates the growing market demand and maturity of embedded payroll solutions. The benefits are measurable: streamlined operations, enhanced user experiences, and improved platform economics. As more platforms successfully implement embedded payroll and realize these advantages, they're well-positioned to consider the next wave of financial service integration.

Building on Existing Infrastructure

Platforms that have implemented embedded payments and payroll have already established the foundational infrastructure for embedded accounting. These platforms manage money movement in both directions: incoming payments from customers and outgoing payroll to employees. Embedding accounting would allow businesses to track and manage these transactions in one place, rather than reconciling them across multiple systems. This natural extension builds on the same objectives that drove platforms to offer embedded payroll: simplifying operations for their customers while creating additional value for the platform.

Current State of SMB Accounting

Research from Cornerstone Advisors reveals the significant burden of accounting operations on small businesses. On average, small business owners spend approximately 20 hours each week managing accounting functions, with time split across bookkeeping, invoicing, expense tracking, financial reporting, and tax management. Even more concerning, about one in five business owners spend more than 30 hours weekly on these tasks.

The technology landscape for small business accounting remains fragmented. Over half of small businesses rely primarily on spreadsheets or manual processes for their core accounting functions. While 33-40% use accounting suites like QuickBooks, many of these businesses still supplement with specialized apps and spreadsheets. Approximately 10% operate without any technology support for accounting, and between 14-23% receive technology directly from their third-party providers.

The fragmented state of accounting technology creates significant operational challenges. Even when businesses use QuickBooks integrations within their vertical SaaS platforms, they still need to manage and reconcile data across multiple systems. This leads to redundant data entry, increased risk of errors, and lost time. Growing businesses, in particular, struggle with these disconnected systems when they need immediate, accurate financial insights to guide their decisions.

The Market Opportunity

Research from Cornerstone Advisors demonstrates clear market demand for integrated accounting solutions. Their findings show that 79% of small businesses would prefer an industry-specific software provider that includes integrated accounting functions.

This strong preference suggests that vertical SaaS platforms have an opportunity to expand their market share by meeting this unmet need for native accounting capabilities within their core offerings.

Strategic Benefits of Embedded Accounting

Comprehensive One-Stop Shop

Embedded accounting builds upon the proven embedded payroll model while introducing several key advantages for both platforms and their users. By integrating accounting directly into their systems, platforms can provide a unified experience where users manage all financial operations in one place. This eliminates the need to switch between multiple systems, reducing the time spent on data entry and reconciliation that currently burdens many small businesses.

Seamless User Experience

The user experience improvements are substantial. Instead of juggling external accounting systems, businesses can access their complete financial picture within their primary management platform. This seamless workflow means less time spent on administrative tasks and more time focused on growth initiatives.

The Economic Case

The financial benefits of embedded accounting flow in multiple directions. For platforms, the opportunity includes increased average revenue per user and the ability to capture value that currently goes to third-party integrations. Rather than building or acquiring standalone accounting solutions, platforms can leverage their existing infrastructure to deliver these capabilities.

Small businesses stand to gain significantly from this integration. Beyond the obvious time savings from consolidated operations, they benefit from reduced error rates and improved financial accuracy. These efficiency gains translate directly to cost savings and better financial operations, allowing businesses to allocate more resources to growth initiatives rather than administrative overhead.

Seizing the Embedded Accounting Opportunity

The transition to embedded accounting represents more than an incremental improvement — it's a fundamental shift in how businesses manage their financial operations. As vertical SaaS platforms continue to evolve, embedded accounting will likely become a standard feature, much like embedded payroll today.

For platform providers, the question isn't whether to implement embedded accounting, but when and how to execute this strategic initiative effectively. Those who move early stand to capture significant market share and establish themselves as comprehensive solution providers in their vertical.

Early adopters among SMBs will gain competitive advantages through streamlined operations and better financial visibility, setting new standards for operational efficiency in their industries. The future of business operations lies in comprehensive platforms that simplify, enhance, and embed financial management for SMBs.

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