I came across a tweet the other day that was really interesting (at least to my small world). The official Xero twitter feed tweeted the following;

This is actually bigger and more exciting than initial consideration would indicate. I was chatting with someone during a conference break the other day (as always the back channel proving at least as valuable as the event itself) and he stated very simply that business revenue and expenditure is just the same as personal income and outgoings. Or in other words budgeting to buy a new piece of plant and equipment for a business for example is the same as Joe Public having the ambition to buy himself a new house, a new car or a shiny new Dell Adamo.

Given this fact, it totally makes sense for a vendor that already has a core accounting engine (let’s call it a money management engine for the purposes of this post) to extend that engine to work with all users – business or otherwise.

It’s a combination that hasn’t really been explored to date. Mint and Wesabe are doing a great job of personal finance and investment tracking. In Xero’s home market, New Zealand, PocketSmith is doing a fantastic job of providing a personal money management tool. Their are also obviously a plethora of business accounting applications – but no one has explored the connection between the two.

Looking at micro businesses it seems to me that the distinction between personal and business finance is pretty blurred. Almost all micro businesses I know use a personal credit card for business expenses – sure that can be solved via expense claims but that’s not really in keeping with the actuality. Similarly most micro businesses that require funding achieve it by using their personal equity to guarantee debt – again removing personal finances from this business finance model ignores this fact.

So I see two great reasons for accounting vendors to offer a personal finance package;

1. It provides for an upgrade path – users can migrate from a potentially lightweight personal finance application to a fuller featured business one
2. It leverages core functions of the app – Xero’s “secret sauce” is the automatic import of bank transactions every night – this has real utility for personal customers as well
3. It can leverage central government strategies – in the current climate most governments are looking at ways to build financial literacy for their citizens. A personal finance application can help with this so there are some potential funding streams outside of the paid application or advertising supported model
4. It more accurately reflects the financial reality for micro/small businesses

Xero has around $20 million dollars to spend after its last funding round. Much of this will be squirreled away to cover their not insignificant revenue/expenditure deficit but it wouldn’t be a bad idea to earmark it for some strategic investments – personal finance would be a good candidate.