Taking its cue from the success of Mint.com in the U.S., Toronto-based Wave Accounting is offering North American small businesses free and automatic tracking of business and personal expenses. Its target market is firms with 10 employees or less.
A Toronto start-up launched a free online accounting service for small businesses on Tuesday, aiming to compete directly with spreadsheets and shoeboxes.
Wave Accounting connects with the bank accounts and credit cards of entrepreneurs and promises to automatically sort out the business expenses from personal expenses. The service will also break down expenses into various categories – for example a purchase made at Starbucks will be filed under food – by gleaning the information from financial account transaction data.
The free service is aimed mostly at small businesses with 10 employees or less, explains Kirk Simpson, CEO at Wave Accounting Inc. These entrepreneurs will often use the same accounts for both personal and business transactions.
“Our goal is to provide a ridiculously easy and free accounting engine for small businesses,” he says. “The existing market is dominated by spreadsheets and shoeboxes.”
Wave isn’t going after the bigger businesses that already use an installed desktop software program for accounting, Simpson adds.
Now available in Canada and the U.S., Simpson says the service took some inspiration from American firm Mint.com. The personal finance site that similarly colour-codes expenses and presents them in pleasing pie graphs is only available in the U.S. It was bought out by rival Intuit (makers of Quicken) in 2009.
Related Story: Powerful online tools for one-stop money management
“We looked to them for some inspiration on how to make an application that was so well received in the market,” Simpson says.
Wave will likely face some of the same challenges as Mint.com as it wades into the financial services market, namely earning the trust of potential users anxious about handing over financial account information and access.
Security is the issue at top of mind for Rajesh Dixit, director of IT consultant firm Datazoom Solutions, after considering Wave’s new service.
“That means they will be able to see everything that happens in our business,” he says. “The founders may be trustworthy, but how are we sure the information won’t flow out of their organization?”
The encryption of connections between financial institutions and Wave are reassuring, Dixit says. But it’s still the first time he’s heard of this company.
Wave uses VeriSign encryption to protect its connections with more than 10,000 financial institutions, Simpson says. The site only gains read-only access to bank accounts, meaning that transaction data can be downloaded but there’s no authorization to conduct a transaction. Wave had a third-party security audit conducted on its processes before launch.”A security breach is a game-changing event for the company we’re trying to build and therefore it’s a huge focus of our company,” Simpson says.
Aside from his security concerns, Dixit sees the value offered by Wave. He hires a bookkeeper about one or two days of the week to do his accounting and this could help reduce that.
“We have tons of receipts that are getting entered manually right now,” he says. “Most of these are credit card or bank account transactions, and it’s a lot of work to do manually.”
Wave will remain free for its users, Simpson says. Additional third-party plug-ins and integration with other software may be paid-for add-ons in the future, but the core platform will remain free. The service will make its money by selling targeted advertising based on users spending habits.
“We aggregate offers against specific data points,” Simpson says. “Our goal is to help our small business clients save money.”
For example, if a Wave user had an expense for a wireless phone plan regularly show up in their account, they might see an advertisement for a less expensive wireless plan offering similar services. If that user takes action and signs up for the advertisers’ service, then Wave gets paid.
Users’ personal information is kept private through this process, Simpson says.
Entrepreneurs running more than one business will be able to use the same account to organize their expenses, Simpson says. Wave offers a drag-and-drop interface for moving expenses between categories and between businesses.
Wave may look at a tie-in with tax reporting software in the future, Simpson says. For now the firm is working with accountants to get businesses on board with the online service.
Wave has been supporting about 100 beta users since March.