How Embedded Accounting Works in Vertical SaaS

Vertical SaaS platforms are fundamentally changing how industries manage their specific business needs. In 2024, these platforms are outpacing horizontal SaaS in growth, with success stories like ServiceTitan's IPO highlighting the sector's momentum.

These platforms easily handle the different complexities and nuances that broader tools or platforms couldn't tackle with the granularity needed by many SMBs in their day-to-day operations. While vertical SaaS solutions have successfully addressed many industry-specific challenges, accounting remains a significant gap. Embedded accounting is a key development in this space, integrating financial management capabilities directly into industry-specific software solutions to address these persistent market needs.

Understanding Embedded Accounting

Embedded accounting marks a departure from traditional financial management approaches. Instead of users managing external, complicated platforms and integrations like QuickBooks, or mostly offline, error-prone, disconnected spreadsheets, vertical SaaS solutions can incorporate accounting functionality directly into their core offerings. 

According to research from Cornerstone Advisors, roughly 6 in 10 small businesses use a vertical SaaS offering like Shopify, Toast, or Jobber to support their business operations. Nearly half of these businesses express strong interest in obtaining accounting services from their vertical SaaS providers, with another 42% indicating potential interest, demonstrating the clear market demand for this integration.

How It Works

Embedded accounting in vertical SaaS platforms operates through sophisticated API integrations. Rather than using traditional integrations or bolt-on solutions, this approach creates seamless, customized experiences where users never feel they're leaving their primary platform. 

Compared to building an accounting suite in-house, buying an existing product, or setting up third-party partnerships that essentially hand customers off, embedding accounting offers faster time-to-market, scalable features, reduced maintenance burden, and direct access to accounting expertise from the provider. These APIs power features like automated invoicing, real-time expense tracking, and comprehensive financial reporting without requiring platforms to build these capabilities internally.

Real-Time Financial Insights

Small business owners currently spend an average of 20 hours weekly on accounting functions, roughly evenly split between bookkeeping, invoicing, expense tracking, financial reporting, and tax management. About one in five spends more than 30 hours a week managing their accounting functions, making real-time capabilities especially valuable in industries with complex financial requirements or frequent transactions, where timing impacts business operations.

Immediate access to financial data enables quick, informed decision-making. By integrating real-time financial data, through embedded accounting, directly into vertical SaaS platforms, SMBs can monitor cash flow, track expenses, and assess profitability without switching between multiple systems or waiting for end-of-month reports. This instant visibility allows business owners to spot trends, identify potential issues, and capitalize on opportunities as they arise.

Key Features and Automation

Embedded accounting through APIs reduces manual work and minimizes errors. When a transaction occurs, the system automatically records, categorizes, and updates relevant financial records. This automation handles:

• Invoice generation and management
• Expense categorization and tracking
• Financial statement preparation
• Tax calculations and estimates
• Revenue recognition and reporting

Industry-Specific Customization

Vertical SaaS platforms can tailor embedded accounting to address unique sector requirements. Consider restaurants, where an integrated financial system could transform operations by connecting point-of-sale data with accounting functions. 

A comprehensive solution would unite all aspects of a restaurant's finances in one place, enabling automated daily sales reconciliation, ingredient cost tracking, and labor expense management. Advanced features could include smart categorization of expenses, real-time cash flow forecasting, and automated bank reconciliation, creating a single source of truth for all financial data while maintaining compliance with industry-specific regulations.

Enhanced User Experience

This integrated approach streamlines workflows significantly. Research shows that companies prioritizing good user experience see a 42% improvement in retention, 33% better satisfaction rates, and a 32% boost in cross-selling and up-selling opportunities. Users access all financial tools within their primary business software, leading to increased platform engagement and higher average revenue per user. When users find comprehensive financial management tools within their industry-specific software, they tend to rely more heavily on the platform — ultimately increasing stickiness and overall adoption.

Implementation Considerations

Success with embedded accounting features depends on selecting the right API partner. The ideal solution offers comprehensive financial capabilities with smooth system integration. This strategic partnership allows vertical SaaS platforms to enhance their offering while maintaining focus on their primary industry specialization.

The Path Forward for Vertical SaaS

As vertical SaaS platforms mature, embedded accounting is becoming a standard feature rather than an optional add-on. With 73% of small businesses reporting high satisfaction with their vertical SaaS solutions and 23% somewhat satisfied, platforms that implement these capabilities effectively position themselves to meet the growing demand for integrated, efficient financial management tools within industry-specific software solutions. The trend is clear: businesses want financial management and accounting services from their vertical SaaS providers, and those that can deliver these capabilities seamlessly will be best positioned for future growth.