Book-keeping in the digital era

Back in my hometown, in India, we own a small ancestral setup in pawn broker-ship or in more common language referred as mortgage. The idea of such an enterprise is really simple, one person has a cash surplus (lender), the other is in need of a small captial (borrower). The borrower goes to the lender offers a personal belonging as a collateral and gets the money for its value. The money is offered at some interest for a fixed tenure, the borrower returns the due and gets the collateral back.

The case in point here were usually farmers from neighbouring villages. They’d go the small shop owners in the cities and offer them collaterals (often jewelry, antique etc.) against capital to buy seeds, fertilizers and agricultutal equipments. Once they collect the profits from the sell of their produce, they’d return the money and retrieve their belongings. By now, I am sure there are few questions popping up in your head.

Why would we trust someone with your money?
Why wouldn’t the farmer go to the banks or obtain a personal loan instead?
Why would this business sustain?
What if you loose the money?
… etc.

Well, I had similar curiosity when I started started spending time with my family to explore the details of the business operation. The focus of my article is not to answer these questions but to highlight one of the many inefficiencies in the disorganized small enterprises.

Over the time, pawn brokership evolved to address different kind of situations and offerings for both lenders and borrowers. Today there are many ways for one to retrieve cash and lend money and also there are many ways for borrowers to payback their money and settle the dues. I studied this system to settle my curiosity and beyond several months into this I am convinced that it is one of the most complex accounting systems I had ever seen. Keeping a real-time visibility on the accounts is one of the biggest challenges for money-lenders. What makes things worse is the computation of income through interest, tax liabilities and determining the cash flows. Surprisingly, everything is still maintained through an archaic system of book-keeping. Lenders like my family would usually rely on an accountant to address their needs, but is that the best way to do it?

Firstly hiring accountants is expensive, secondly accountants themselves use softwares like excel and tally to maintain the transactions which again requires the lenders to spend lot of time and money in consultation. Despite spending money on accountants, lender’s still do not completely understand the sophisticated workflows built for their organization. This is highly inefficient!

I took a step back and thought about this problem in general. Is book-keeping a challenge only for our family enterprise or for every small business around? I talked to several small business owners to find the real situation, It unfolded that it is indeed the case! They all manage their accounts manually and desired if they had an easier solution. They needed some system to manage their inventory, invoicing, cash flows, purchasing, alternate earnings, etc. These owners had already considered potential utilities which would help them run their accounting more effectively but they didn’t find any perfect and a unified solution.

Existing book-keeping softwares or we also call them digital ledgers are unaffordable and really complex to use, specially because they’re built to address the accounting needs for big organizations. There are free mobile applications but they are often low in quality, not so good UI and incompatible with their use cases. There are few good workflows built with tally but they offer limited accessibility. Further custom built softwares are unaffordable for them. So this is indeed a problem worth solving!

The accessibility of internet and smart phone technology has catalyzed the growth and accessibility of web-applications. Additionally with the rapid expansion of digital payment infrastructure in India, small businesses are accepting digital payments more readily than ever before, which is a sign that they are ready to modernize their operations. A modern digital ledger that is affordable for small enterprises is potentially disruptive. There is a great opportunity for a smart ledger one which is easy to use, addresses basic needs and is highly accessible for the people, who are not-so-tech-savvy. Startups like khatabook and vyaparapp.in have been built on the same belief. But this is just the tip of the iceberg, addressing the accounting needs for small businesses could potentially be the next big thing in this small and yet very big market!

UPDATE: Just few days after I published this article Bukuwaru — An Indonesian venture addressing a similar problem raised an investment round. Check out the press release here : TechCrunch