Streamlining Financial Management for SMB Merchants

In today's rapidly evolving business landscape, small and medium-sized business (SMB) merchants face unique challenges, particularly when it comes to financial management. As we delve into this critical topic, we'll explore the current state of SMB merchants, the financial hurdles they face, and how integrated financial services and commerce platforms are revolutionizing the way these businesses operate. We’ll close with specific suggestions on how these platforms can fill the remaining gaps for their SMB merchants.

According to the Small Business Association, SMBs represent 99.9% of all companies in the United States and the majority of these companies (81%) are owner operated with no employees.

Both of these stats paint a clear picture: The vast majority of SMB merchants are solo operators juggling multiple responsibilities.

These small business owners wear many hats, simultaneously managing operations, inventory control, marketing and sales, web design and development, payroll, human resources, and much more. While larger enterprises often have dedicated teams for each of these functions, SMB owners must handle it all themselves. This jack-of-all-trades approach, while admirable, can lead to significant challenges, particularly in financial management.

Why SMBs Struggle

Finance is the thread that connects all aspects of a business, from operations to marketing. Unfortunately, it's also often the Achilles' heel for many SMBs. Approximately 20% of small businesses fail within their first year, and this failure rate only increases as time goes on. Financial mismanagement is a primary factor in these failures.

The reasons for financial struggles are varied but often include a lack of financial expertise, insufficient cash flow management, inadequate bookkeeping and accounting practices, difficulty accessing capital or credit, and challenges in scaling operations efficiently. These issues are compounded by the fact that most SMB merchants are stretched thin, trying to manage every aspect of their business without specialized knowledge in each area.

The Rise of Integrated Financial Services and Commerce Platforms

The financial ecosystem for SMBs is currently undergoing a significant transformation. Traditional methods of financial management are being supplanted by innovative technologies and integrated platforms. These advancements promise to streamline operations, enhance decision-making processes, and ultimately contribute to the longevity and success of small businesses.

SMB merchants, however, have particular needs aside from the broader population of SMBs. A primary example of this can be found with reconciliation.

While reconciliation is important for most businesses, it is an acute need for SMB merchants. While all SMBs need to review their financial statements and reconcile those statements to daily transactions, SMB merchants have an even more specific need due to the nature of how they get paid. When using payment processors (e.g. Stripe, Square, etc.), many orders and refunds can be accumulated into a single bank deposit (also known as a payout). And, adding to the complication, merchant fees are also taken out of the payout before the bank deposit is made. Surprisingly, almost all SMB merchants do this manually, either themselves or via a bookkeeper.

Full reconciliation for an SMB merchant means being able to match the bank deposit on the bank statement to the individual orders and refunds, as well as the merchant fees; individual orders could number in the 5-10 range or exceed hundreds within a given day, exacerbating manual reconciliation processes. Yet, comprehensive reconciliation is essential for merchants because it affects all parts of their financial management of the business, from revenue to cash flow to profitability (and auditability).

Recognizing these challenges, several leading commerce and financial platforms have made significant strides in embedded finance offerings. Companies like Shopify, Square, PayPal, SumUp, and SpotOn have developed innovative solutions that address many core financial needs of SMB merchants. However, while these platforms have successfully integrated various financial services, certain critical gaps remain — particularly in areas such as reconciliation — that prevent them from offering truly comprehensive financial solutions for SMBs.

Through our work with tens of thousands of SMB merchants, at Tight, we’ve gained deep insight into these reconciliation challenges, leading to the development of strategic integrations with these platforms, like Shopify and Square. The experience of serving this merchant base has revealed that the natural progression of embedded finance solutions leads inevitably toward embedded accounting.

The following analysis examines each platform's embedded finance solutions and explores how the evolution toward embedded accounting could further enhance their value proposition for SMB merchants.

Shopify 

Shopify evolved from a snowboard e-commerce site into a comprehensive commerce platform serving businesses of all sizes with both online and in-person solutions. With the recent release of Shopify Finance, the platform now offers embedded financial services that consolidate essential merchant financial tools into one unified platform. This comprehensive offering surpasses competitors by creating a "unified financial home" that meets the growing demand from SMB merchants for all-in-one solutions. As Jake Chambers, Co-founder of Pupsentials, notes, "We wouldn't be on our way to $10M in revenue if not for Shopify Finance. After working with multiple financial vendors in the past, it makes a lot more sense to run our business on one platform."

The core components of Shopify Finance — Shopify Balance, Shopify Credit, Shopify Capital, Shopify Bill Pay, and Shopify Tax — provide merchants with integrated financial management tools that streamline business operations, support scaling, and enhance cash flow visibility directly within the Shopify platform.

• Shopify Balance, powered by Stripe Treasury, is an innovative embedded finance solution that provides a free business bank account integrated directly into the customer's admin interface. This offering currently allows merchants to earn 3.39% interest on all deposited funds, optimizing their capital efficiency. Shopify Balance delivers a comprehensive view of finances, offering real-time insights into cash flow and financial health. The solution includes both physical and virtual business spending cards, catering to diverse purchasing needs. A dedicated mobile app ensures merchants can manage their finances remotely, enhancing operational flexibility. Notably, Shopify Balance operates with zero monthly fees, facilitates faster payment processing, and allows fund organization across up to five additional accounts. This level of financial organization can help streamline tax management and provide cashback rewards, creating a compelling value proposition for SMB merchants aiming to optimize their financial operations.
• Shopify Credit offers SMB merchants a pay-in-full Visa card without requiring credit checks or impacting personal credit scores. The card features tailored credit limits that scale with business growth and provides 3% cashback rewards on eligible expenses, with flexible repayment options. Accessible directly from the Shopify admin interface, merchants can boost their cash flow by using the card for various business expenses, including marketing spend like Google Ads. The card is accepted wherever Visa is accepted, providing broad utility for business purchases.
• Shopify Capital provides flexible funding solutions for SMB merchants at every growth stage, accessible directly through the Shopify admin. This innovative financing option requires no credit checks and has no impact on personal credit scores, with offers customized to each business's needs. Merchants only make payments on days they generate sales, with reduced payments during slower periods. The funding process is streamlined, with potential approval and deposit within two business days and funding available up to $2 million. Notable features include no personal liability, no compounding interest, early renewal options with a simplified application process, and full integration within the Shopify platform.‍
• Shopify Bill Pay, powered by Melio, is an integrated business payments tool within the Shopify ecosystem. This solution enables merchants to schedule, pay, and manage all their business bills directly from their Shopify admin interface, eliminating the need for multiple platforms. By centralizing bill management, SMB merchants can efficiently track all their vendors, suppliers, and contractors in one location, reducing administrative complexity and potential errors. The solution offers payment flexibility, allowing vendors to receive funds via check or bank transfer, accommodating various preferences and banking arrangements. This level of integration and customization positions Bill Pay as a valuable tool for SMB merchants, streamlining accounts payable processes and providing a clear, organized view of financial obligations. Incorporating such a comprehensive bill management solution into platforms can significantly enhance the value proposition for SMB clients, addressing key challenges in financial management and operations.
• Shopify Tax simplifies U.S. sales tax compliance for SMB merchants through automated calculations, liability insights, and integrated filing capabilities within the Shopify admin. The system helps merchants track sales tax obligations and monitor thresholds, automatically collecting appropriate taxes at checkout based on precise product and location data. With rooftop-precision rate calculations across 11,000+ U.S. sales tax jurisdictions, merchants can view detailed sales and tax information by state, county, and local jurisdictions. The platform offers smart product categorization suggestions to ensure accurate tax rates and provides state-by-state liability overviews with threshold alerts. By automating sales tax returns and remittance, Shopify Tax enables merchants to maintain compliance without leaving their Shopify admin interface.

Square 

Square evolved from a credit card processing solution into a comprehensive point-of-sale and business management platform, offering software and hardware solutions for SMB merchants across multiple industries

Square's suite of embedded finance solutions caters to the diverse needs of SMB merchants, offering seamless integration of financial services within their business operations. From invoicing and banking to payroll and instant fund access, Square's offerings are designed to streamline financial management, enhance cash flow visibility, and provide flexible tools for growth across various aspects of business finance.

• Square Invoices is a comprehensive invoicing solution designed for SMB merchants. This feature enables businesses to send estimates, create contracts, and request payments efficiently. Square Invoices offers flexible payment options for vendors, allowing merchants to accept payments instantly, track transactions in real-time, and set up recurring billing schedules tailored to their needs. The platform provides customization options for invoice appearance, ensuring brand consistency. Square Invoices centralizes payment-related information, offering a clear overview of cash flow to support informed business decisions. By consolidating essential details, contracts, estimates, and invoices into a single powerful platform, Square streamlines business processes. The solution also includes automation capabilities for routine tasks, comprehensive reporting features, and integration with Afterpay's Buy Now, Pay Later option. Additionally, the Committed Inventory for Invoices feature allows sellers to allocate stock to buyers upon invoice issuance, enhancing inventory control.
• Square Banking is an integrated financial management solution that seamlessly combines payments, banking, and cash flow management within the Square ecosystem. This feature enables SMB merchants to watch their sales directly flow into their Square Banking account, facilitating quick and easy access to funds. Square Banking offers instant access to funds through a Square Checking account, a high-yield Square Savings option for optimizing idle capital, and potential eligibility for Square loans (i.e. Square Capital) to support business growth. The interconnected nature of Square Banking streamlines financial operations, allowing for automated money movement and providing a holistic view of a business's financial health.
• Square Payroll simplifies the often complex task of managing employee compensation. This solution enables SMB merchants to efficiently run payroll, handle tax obligations, and maintain compliance with relevant regulations. By automating these critical but time-consuming processes, Square Payroll allows business owners to focus more on core operations and strategic initiatives, rather than getting bogged down in administrative tasks.‍
• The SquareCard, powered by Marqeta, is a financial tool that provides SMB merchants with immediate access to their sales proceeds. Linked directly to the Square Checking account, this debit card allows business owners to utilize funds as soon as a sale is processed, eliminating traditional waiting periods for fund availability. The SquareCard offering includes the option to obtain up to five additional cards for the business, facilitating expense management across multiple team members or departments. This instant access to sales revenue enhances cash flow management and provides greater financial flexibility for day-to-day business operations.

PayPal

PayPal has transformed from a digital payment system into a comprehensive financial platform, offering tailored payment solutions for ecommerce providers and marketplaces, including customizable payment flows, fee splitting, and consolidated fund management.

PayPal has expanded its services beyond its origins as a digital payment system, now offering comprehensive embedded finance solutions tailored for businesses of all sizes, from individual entrepreneurs to large enterprises.

• PayPal's Invoicing solution offers a streamlined approach to billing for SMB merchants. This feature enables businesses to send online invoices that customers can pay instantly using their preferred payment method, regardless of whether they have a PayPal account. The system is designed for ease of use, allowing merchants to create and manage invoices efficiently. PayPal's invoicing stands out with its cost-effective model, charging no monthly subscription fees and allowing unlimited invoice creation - merchants only pay when they receive payment. The platform supports a wide range of popular payment methods, including credit and debit cards, installment options, Venmo, and Apple Pay, catering to diverse customer preferences. Merchants can customize their invoices to align with their brand identity and specific needs. Additionally, the mobile functionality enables invoice creation on the go, providing flexibility for businesses operating in various environments. This comprehensive invoicing solution is tailored to enhance cash flow management and simplify billing processes for SMB merchants.

SumUp

SumUp is a financial services company that helps businesses like restaurants, spas & salons, and retailers. They offer a suite of tools for SMBs to manage their finances, process orders, and take payments.

SumUp equips SMB merchants with a robust array of embedded finance solutions, providing tools for invoicing, expense tracking, and swift payment processing to optimize financial workflows and fuel business expansion.

• SumUp's Invoicing solution offers a user-friendly tool for SMB merchants to streamline their billing processes. With the ability to create invoices and quotes in seconds, this feature accelerates cash flow and simplifies sales management. The "Smart Invoicing" functionality automatically calculates totals and flags any missing or incorrect details, reducing errors and saving time. To expedite payments, the system supports various payment options including online card payments, bank transfers, cash, Google Pay, and Apple Pay. This versatility caters to customer preferences and potentially increases on-time payments. The solution also allows merchants to easily manage their accounts and access customer-specific documents, including outstanding balances.‍
• The Expense Tracking feature from SumUp provides SMB merchants with easy tracking of all expenses under a unified transactions view, offering a clear picture of where money is being spent. The ability to export these expenses into a CSV format facilitates integration with other financial systems and simplifies reporting processes. Merchants can view their expense history with granular detail, including date, reason, user, VAT, total amount, payment method, and bill number. This level of detail supports more informed decision-making and helps identify areas for cost optimization. ‍
• SumUp’s Banking offers a comprehensive, all-in-one business bank account solution for SMB merchants. SumUp Banking gives merchants the ability to effortlessly spend, save, and manage their funds through a streamlined, smartphone-accessible interface. The SumUp Business Bank Account boasts a suite of features designed to give small businesses complete control over their finances, without the burden of hidden fees or complex processes. It facilitates same-day bank transfers and next-day deposits of sales proceeds, significantly improving cash flow management. The account's flexibility makes it suitable for businesses of any size or budget, offering essential services such as sending and receiving money, business expense management, and seamless integration with SumUp's payment processing systems. This integration ensures that funds from sales made via SumUp Card Readers are swiftly deposited into the business account by the next business day, providing merchants with fast, reliable access to their earnings without additional costs.

SpotOn

SpotOn is a point of sale system and payment processing software whose customers are restaurants, retailers, professional services, automotive vendors, and health & beauty providers. 

SpotOn's embedded finance solutions offer SMB merchants powerful tools for streamlined payroll management and flexible access to capital, designed to optimize operational efficiency and support business growth through innovative financial technology.

• SpotOn Teamwork, powered by Gusto Embedded, revolutionizes payroll management for SMB merchants. This innovative solution seamlessly integrates with a top payroll processor, significantly reducing the time and effort required for payroll preparation. By leveraging time-clock data directly from the point-of-sale system, it generates comprehensive payroll reports ready for publication to the merchant's preferred payroll processor. The system's automation capabilities streamline the entire payroll process, minimizing manual input and potential errors. SpotOn Teamwork offers extensive customization options, allowing businesses to tailor roles, wages, salaries, pay schedules, and tip distributions to their specific needs. For merchants operating across multiple locations, the solution provides a centralized platform to manage payroll consistently, ensuring a smooth workflow every payday and reducing the complexity of multi-site operations.‍
• SpotOn Capital addresses a critical need for many SMB merchants: access to funding. This embedded finance offering provides qualified SpotOn clients with the opportunity to secure loans up to $300,000 through a streamlined application and approval process. The system is designed for speed and efficiency, with fast deposit times ensuring that merchants can quickly access the capital they need to fuel growth or manage cash flow. Loan management is simplified through an intuitive dashboard, giving business owners clear visibility into their financial obligations. SpotOn Capital offers flexibility with its optional prepayment feature, allowing merchants to pay off their loans ahead of schedule without incurring fees, potentially reducing overall interest costs. Furthermore, the continual renewal option enables businesses to reapply for additional funding once their initial loan is repaid, creating a revolving source of capital to support ongoing business needs and opportunities.

The Benefits of Embedded Finance on a User’s Lifecycle

The finance components embedded into these platforms offer significant advantages for both the platforms themselves and their SMB merchant users.

By integrating comprehensive financial tools directly into their offerings, platforms can enhance user acquisition as they become one-stop shops for business management and financial services. 

These integrations have the potential to grow the average revenue per user, as merchants are more likely to utilize multiple services within a single ecosystem.

Critically, embedded finance will help reduce platform churn by addressing the financial challenges that often lead to small business failures. By providing real-time financial insights, automated accounting, and streamlined operations, these platforms empower SMB merchants to make informed decisions and manage their finances more effectively. This support is instrumental in helping businesses survive and thrive, thereby increasing merchant retention on the platform.

The seamless experience of having all financial functions in one place, from invoicing and payroll to capital access and expense tracking, not only simplifies operations for SMB merchants but also creates a sticky ecosystem that encourages long-term platform loyalty. Ultimately, by offering a unified financial experience, platforms can position themselves as indispensable partners in their users' business success.

Who Will Gain More Market Share?

As shown above, the landscape of financial services for SMB merchants is rapidly evolving, with major players like Shopify, Square, PayPal, SumUp, and SpotOn enhancing their platforms through embedded finance solutions.

Each company is strategically integrating various financial components — from banking and invoicing to payroll and lending — directly into their core offerings. While SMB merchants ultimately have the choice of which platform best suits their needs, the trend clearly points towards a preference for comprehensive, all-in-one solutions.

The platform that successfully prioritizes fully embedded financial functions, creating a seamless, unified experience, is likely to capture a larger market share. SMB merchants are increasingly seeking streamlined, integrated solutions that allow them to manage all aspects of their business finances in one place, rather than juggling multiple fragmented tools. As these platforms continue to evolve, the one that can offer the most cohesive and comprehensive financial ecosystem will likely emerge as the preferred choice for SMB merchants looking to simplify their operations and focus on growth.

The Missing Piece: Embedded Accounting

While the trend among financial services and commerce platforms is to offer a wide range of embedded financial services, one area stands out as particularly integral for SMBs: accounting. This integration of accounting functions directly into business management platforms can be revolutionary for how small businesses handle their finances.

Embedded accounting goes beyond simple bookkeeping. It can create a seamless financial ecosystem directly in the platforms listed above where every transaction, whether a sale, refund, bill payment, or payroll entry, is automatically recorded, categorized, and reflected in real-time financial statements. This is especially useful for platforms that have enabled both ‘money in’ and ‘money out’. This integration eliminates the need for manual data entry in spreadsheets, reduces errors, and provides SMB owners with an up-to-the-minute view of their financial health. It also fully automates the complex reconciliation inherent in payouts that include multiple invoices and/or merchant fees.

There are many benefits of embedded accounting. First, it saves time – one of the most precious resources for SMB owners who are already wearing multiple hats. Instead of spending hours reconciling accounts or creating invoices via the typical integration to third party, off platform products such as QuickBooks, business owners can focus on growth and strategy. 

Second, it improves accuracy. By reducing manual data entry and automating calculations, the risk of errors is significantly decreased. 

Third, it provides timely insights. With real-time financial data at their fingertips, SMB merchants can make informed decisions quickly, whether it's about inventory purchases, staffing, or investment in new equipment.

Lastly, embedding accounting functionality into a platform creates a valuable new revenue stream, as SMBs are often willing to pay for comprehensive, accurate financial management tools that simplify their operations. In research from Cornerstone Advisors, they found that SMBs spend on average 20 hours a week on accounting functions and have an average spend of over $9,000, depending on their annual revenue, per year on third-party accounting services. 

By offering embedded accounting, platforms can charge additional fees or create premium tiers, thus increasing the average revenue per user. Moreover, the enhanced value proposition of a unified financial and operational system can attract more users to the platform, further boosting overall revenue potential.

Recent studies underscore the growing demand for these integrated solutions. While 60% of SMBs already use vertical SaaS offerings like Shopify or Toast for business operations, an overwhelming 80% of small businesses would prefer an industry-specific software provider if it included integrated accounting functions. This statistic reveals a clear gap in the market – SMB owners are hungry for solutions that can truly unify their financial management experience.

The integration of accounting into these platforms is not just about convenience; it's about empowering SMB owners with financial literacy and control. By demystifying accounting processes and making financial data more accessible, these platforms are enabling small business owners to become more confident and competent financial managers. This, in turn, can lead to better business decisions, improved profitability, and ultimately, a higher rate of survival for small businesses.

These platforms could reap the benefits previously mentioned and transform financial management for SMB merchants by integrating embedded accounting into their existing services. If they incorporate comprehensive accounting functions directly into their platforms, these companies could create unified financial ecosystems that go beyond their current payment processing and business management offerings. What would embedded accounting look like for Shopify, Square, PayPal, SumUp, and SpotOn?

Shopify Accounting would tie Shopify's merchant income (i.e. A/R) together with Shopify Balance and Shopify Bill Pay (i.e. A/P). This would give the merchant the full financial reporting needed to grow their business. Importantly, bank accounts and credit cards used outside of Shopify Balance could be brought into the same ledger, allowing for a full financial snapshot. Shopify could embed such a solution into its own product, ideally not only giving sellers automatic reconciliation of payouts to bank deposits but also Bill Pay transactions to withdrawals, with automatic expense categorization along the way.

Square Accounting  would be a fully embedded and tightly integrated full accounting suite inside of Square's platform. Square could embed such a solution into its own product, ideally not only giving Sellers automatic reconciliation of payouts to bank deposits but also payroll runs to withdrawals, with full double-entry accounting occurring in the background. By unifying Square Invoices, Square Banking, Square Payroll, and Square Card (along with any external accounts) into one ledger, Square sellers would get full financial reporting and never need to leave the Square platform for anything related to finances.

PayPal Accounting, having evolved into a comprehensive financial platform, could integrate embedded accounting seamlessly into its existing services. For PayPal's SMB merchants using the Invoicing solution, embedded accounting could automate the complex reconciliation process for payouts involving multiple invoices and merchant fees. Additionally, PayPal Accounting could offer robust expense tracking capabilities, allowing businesses to easily monitor and categorize their spending, attach receipts digitally, and generate expense reports effortlessly. This comprehensive expense tracking would directly feed into real-time profit and loss statements, giving businesses an up-to-the-minute view of their financial performance and enabling more accurate budgeting and forecasting. It would provide real-time financial insights and statements, eliminating the need for manual data entry and reducing errors. .

SumUp Accounting would enhance its platform by incorporating embedded accounting directly into its existing suite of tools. SumUp accounting would automatically sync all transactions, including those processed through SumUp's payment solutions and SumUp Banking, into real-time financial statements, eliminating manual data entry and reducing errors. The fluid connection with SumUp Banking would allow for real-time cash flow management, with same-day transfers and next-day sales deposits automatically reflected in financial reports. For SMB merchants using SumUp's Invoicing solution, embedded accounting could streamline the reconciliation process for various payment methods, from online card payments to bank transfers. The system could leverage SumUp's Expense Tracking feature, automatically  ingesting them directly into profit and loss statements, providing businesses with an instant, accurate view of their financial health. This real-time integration of sales and expense data would enable quick, informed decisions on inventory, staffing, or equipment investments. By offering this integrated accounting functionality, SumUp could create a new revenue stream through premium tiers or additional fees, tapping into the substantial market of SMB accounting needs. 

SpotOn Accounting would automatically consolidate transactions from SpotOn's various systems into dynamic financial dashboards, minimizing manual intervention and boosting accuracy. For merchants utilizing SpotOn Teamwork, the embedded accounting could intelligently process payroll data, instantly adjusting financial statements after each pay period. The system could seamlessly integrate SpotOn Capital information, providing real-time visibility into loan impacts on cash flow and profitability, offering businesses a comprehensive view of their financial landscape, including current and projected debt obligations. This multifaceted integration of sales, employee compensation, and financing data would empower owners to make agile decisions on workforce planning, business expansion, or capital investments, leveraging their accurate, fully-reconciled, and built-in financials.

The Future of SMB Financial Management

The trend towards unified financial experiences is only going to accelerate. Successful platforms will be those that offer all-in-one solutions, combining e-commerce, point-of-sale, financial services, and accounting all in one package. These solutions will increasingly be tailored to the unique needs of different business types, from restaurants to retail to professional services.

For SMB merchants, streamlining financial management is not just about convenience—it's about survival and growth. By embracing integrated platforms that offer comprehensive financial services, small business owners can focus on what they do best: delighting customers with their own unique mix of products and services. As we move into a new year, the message is clear: the future belongs to platforms that can offer a truly unified financial experience, empowering SMB merchants to navigate the complex world of business finance with confidence and ease.