Codat's guide to the software market July 2020 How is the accounting market changing and what does this mean?

Across the world there are certainly dominant players within the market. However the market is rapidly changing and expanding.

Key players are diversifying and fragmenting their offering to suit the ever changing needs of their key audience - the small business.

A long tail of other accounting packages has emerged, spurred on by a huge shift in demand from desktop based packages to cloud based services which has largely been attributed to changing consumer expectations and regulation that has driven accounting and tax online.

The expansion of cloud services has opened the door to more accessible and cost-saving software packages that include more automated features meaning that individuals with little to no accounting experience could navigate them.

The cloud also allows for more centralised data which freely flows through APIs and integrations across platforms leading to greater insights and analysis that can be vital for a small business to survive and flourish.

The accounting software market has transformed into a highly competitive, digitized and interconnected landscape which is largely driven with one customer in mind - the small business.

*All data contained within this paper is based on extensive research carried out by Codat from various different sources, including both public and non-public sources. Some data has been calculated based on global figures and split across regions according to presence in the region. All data has been provided on a best-efforts basis, however Codat cannot guarantee the accuracy or completeness of this information. Codat accepts no liability which might arise from the content of this paper. Accounting platforms by region

The companies with largest market share in accounting software include (Quickbooks), , Sage, FreshBooks, Wave and MYOB.

However, various other companies operate in the market and are coming up with new technologies and offerings which are helping the market expand rapidly in terms of revenue and users.

UK 9% Quickbooks desktop Quickbooks 9%  online Quickbooks desktop 7% Freshbooks 47% 30% 25% 20% 16% 28%

Sage 50 Quickbooks 9% Other Xero online Other Wave

Australia + USA Quickbooks self employed 9% Quickbooks online Other 4% 56% Xero 44% 32%27% 20% 17% 8%  15% MYOB Other Quickbooks Quickbooks Xero Accountright online desktop How we gathered the data

Data on accounting software market share is not publicly available and difficult to gather, which is why we have written this report, entirely on a best efforts basis. We have used a combination of publicly announced numbers from annual reports, governmental statistics, press reports, public surveys and private surveys conducted by Codat in individual markets, private surveys conducted by Codat clients of their SME user bases, figures of businesses synchronising data through the Codat platform and other public and non-public data sources. The methodology of how these figures were reported may not be publicly available and therefore may not be possible to accurately combine or contrast. Based on the information available to us, we have provided our best estimate of the market share in the respective region. If you know of additional sources of data or believe that our estimates are incorrect, please do let us know - we intend to continue refining these figures and will update them as new information becomes available.

*All data has been provided on a best-efforts basis, however Codat cannot guarantee the accuracy or completeness of this information.

Codat accepts no liability which might arise from the content of this paper. SPOTLIGHT Spotlight USA Quickbooks self employed 16% SMALL BUSINESSES 2% Quickbooks desktop There are around 30.7 million small Sage 50 15% 2% businesses in the United States making Quickbooks online Freshbooks 44% up over 99% of the total number of 4% businesses in the region – 75.3% of which have 10 employees or fewer.

A fragmented Quickbooks offering Quickbooks is the dominant player in the United States however their offering is highly fragmented with numerous different versions on offer. They are making strong progress at converting their desktop user base to their cloud offering, but, as is the case across the globe, it is typically the larger, more valuable clients GoDaddy Wave which are more reluctant to make the switch. 4% 3%

Xero Other 4% 6%

OTHER PLAYERS IN THE REGION % of businesses using accounting software ed y 2500 mpl o op E sk t

2000 V P A s Sel f A X 1000s of s D e 1500

businesses ne e nline ,500 7 s s O ynamics N ynamics G ynamics s O s Quickboo k 8

1000 D D tsui t QuickBoo k 823,200 e t D act ft ft t o o sin e o o 000 n e 46 000 s s o 000 shboo k , 7 000 os f o o , e hop

500 2 B u a v e r r 000 000 177 000 400 089 acle N 21 7 X ashoo 2,890 F 201,500 GoDadd y 20 0, 000 , , 362,500 ic r ic r ic r 480 r W 16 0, 0 9 , A P Sage 50 12 0 K 11 0, Sage 300 9 ndine r Quickboo k 2 , 11 , 2 0, ER P 1 9 Sage I O M 1 , 1 0, M M S I 2 0, E2 S 9 3 7 22 , 0

Does the size of a business determine the package they use? CODAT SUPPORTS

Micro Small Medium

72% of businesses currently supported

Quickbooks Self Employed Quickbooks Online Quickbooks Desktop Freshbooks Xero Microsoft Dynamics 94% Wave Sage 50 SAP of businesses supported by end of year SPOTLIGHT Spotlight Canada

SMALL BUSINESSES Quickbooks self employed

Wave 5% There are 1.15 million small businesses in 9% Quickbooks desktop Canada making up 97.9% of the total 9% Quickbooks online number of businesses in the region – 75% Kashoo 47% of which have 10 employees or fewer. 5%

In-house accounting In Canada, accounting practices are driving the adoption of cloud accounting. 82% of business owners regard their accountant as a trusted advisor and partner, and the steady adoption of cloud accounting software has allowed them to expand the range of services from compliance (tax returns, ) to repeatable advisory services (budgeting, cash flow projection).

Freshbooks 7% Sage 300

7% Xero Other 4% 3%

OTHER PLAYERS IN THE REGION % of businesses using accounting software

300 ed y

250 V op P A mpl o sk t 1000s of 150 E s D e ne nline s f

businesses s Sel f s O cti ynamics 365 ynamics N ynamics G ynamics s O s 100 s A D D D D e k 44 act 25 000 ft ft ft ft 7 t shboo k a v 1 9 0 sin e o o o o 1 , n e s s s s 3 , o 000 r 1 5 W 52 , Quickboo k 5 000 600

50 o o o o F 44,906 Sage 300 4 B u ashoo e r ogiciel 4 , 4 , Quickboo k 31 , K 28 , 2 L X 2 ic r ic r ic r ic r 600 oho Boo A P ,500 283,8 4 Quickboo k 2,550 305 M 7 M S M Z Sage 200c 811 Sage I M 126 1 , 5,500 2,533 0

Does the size of a business determine the package they use? CODAT SUPPORTS

Micro Small Medium

76% of businesses currently supported

Wave Quickbooks Online Quickbooks Desktop Quickbooks Self Employed Sage 50 Microsoft Dynamics 94% Freshbooks Xero Sage of businesses supported by end of year SPOTLIGHT Spotlight UK

Quickbooks Sage 50 SMALL BUSINESSES desktop 16% 10% Quickbooks online There are 5.9 million small businesses 20% in the UK making up 99.9% of the total 4% Xero Sage 200c number of businesses in the region – 95% 25% 3% of which have 10 employees or fewer.

Making Tax Digital Making Tax Digital accelerated the development of the UK accounting software market allowing it to diversify with new and nimble cloud accounting packages.

This, in addition to the larger market players in the region's slower move to the cloud, provided an opportunity for well-funded players from other geographies to invest effectively in marketing their cloud products in the UK, Sage 200 3% leading to the most fragmented market of those selected. Other Freeagent 3% 12% Iris 4%

OTHER PLAYERS IN THE REGION % of businesses using accounting software

600 op 500 t k s ed s D e y

400 k V P

1000s of mpl o s Cloud 731 E ,

300 s businesses f e Quickboo 23 0 t sin e ne nline s Sel O ed O ynamics 365 ynamics N A s s ynamics G ge n tsui t 200 w s s s D 000 D e o , D e an c 000 N 000 ft , 000 ft , v , nline ft 000 ee A , o r o 0 sin 5 d Sage B u 10 0 o ris 000 s O 0 , I 86 s s F 7 s u Sage 200c 8 A ashfl 25 7 Sage 200 7 s o 100 ed Cloud shboo k e 000 o 000 o 2 000 , 4 acle K 5 , B 104 000 R , , v e o , Quickboo k 53,896 r 000 000 000 000 9 andle 000 , r 7 0 r ic r , P ne act 0 , a ic r ashoo ic r 000 000 400 9 000 000 000 F 2 O 1 P 2 cc e e 13 91 , ,900 x , , 000 600 , , , , A , 0 , , O 16 , M Clearboo k 13 15 , K 14 X 6 QuickBoo k Sage 50 40 0 4 Sage X3 1 M 9 2 S 1 A 2 E W 1 Big 130 3 M Sage 100 5 0 Bokio 8 Sage 300 6 Sage 1000 5

Does the size of a business determine the package they use? CODAT SUPPORTS

Micro Small Medium

83% of businesses currently supported

Quickbooks Self Employed Quickbooks Online Sage 50 Sage Business Cloud Xero Sage 200 91% Xero FreeAgent Microsoft Dynamics of businesses supported by end of year SPOTLIGHT Spotlight and New Zealand Quickbooks Self Employed 1% Sassu 1% SMALL BUSINESSES 2% There are 2.9 million small businesses Xero 56% in Australia & New Zealand making up 93.8% of the total number of businesses in the region – 76.2% of which have 10 employees or fewer.

The rise of Enterprise Cloud Platforms Where MYOB previously dominated in the region, the recent years have shown an upsurgence in other software packages such as Xero and Quickbooks. The ANZ market has seen the quickest move to cloud packages anywhere in the world, primarily due to the success of Xero over the last ten years. Quickbooks online Other 9% 1%

MYOB Account Right 27%

OTHER PLAYERS IN THE REGION % of businesses using accounting software

t ig h R t cc ou n A ed y 000 V OB op

1000s of Y nline O mpl o M 628 , sk t E orld businesses s

v10 f ne W e ed

e ee s O s D e r t s s t ynmics N A ynamics G P s Sel s an c s e ne tsui t D D ations sign v e e O sin e d ft ft N sin e A o o Quickboo k 201,848 s s 000 u yD e on o o 150

Cloudsi t o o B r su B

000 a o n Appli c OB G r OB shboo k 000 152

o r P P acle sp r Quickboo k 65 , o ec k Y ic r Y ic r e f S r w 000 nit4 B u 306 , e 318 r ci M1 000 000 000 000 000 050 000 r A i A , y , ,800 , , , , , , , , 54 , R F n Sa s 25 , Quickboo k 22 , X 1 Abel 1 M 580 S 500 O 1 S M 200 N2 200 S 500 1,500 M 1 I J 1 E 1 U 2,200 Sage 300 2 200 I 1 1 M 1 7 P F

Does the size of a business determine the package they use? CODAT SUPPORTS

Micro Small Medium

97% of businesses currently supported

MYOB Essentials Xero Xero Quickbooks Self Employed MYOB Account Right MYOB Account Right 98% Sassu Quickbooks Online MYOB ERP of businesses supported by end of year The future of accounting

With technology automating almost every aspect of accounting what does the future hold for accounting software?

The central impetus behind the change in the accounting software market over the last decade has been the move to cloud. This opportunity for new entrants has resulted in a fragmented market.

Now that the path is set, with even mid-size businesses expected to mostly convert to cloud packages in the next decade or so - what does that mean for the market and where will the most forward-looking accountants and businesses look next?

Accounting packages are now the central financial operating system of an SME. We’re seeing increasing demand for interoperability with other financial products which is concrete proof of this fact - from the rise of government mandated e-invoicing in South American countries to Making Tax Digital in the UK. Even the smallest businesses are moving onto accounting packages as cloud reduces the barriers to entry and legislation mandates their use.

Not only are platforms growing in number but they are also expanding to become marketplaces for financial and business advisory services, with vast and increasing app ecosystems which allow small businesses to plug in the other products that they use to run their business. From to cashflow forecasting to audits to the administration of loans, the manual data entry work which has constituted the majority of accountants’ work is being slowly automated through integrations.

Therefore accountants will increasingly move into becoming advisors. For the accounting software providers, those who provide the largest set of integrated products and services, from payments to insurance, will see the greatest gains in market share over the next few years. The pace of change will only accelerate. Thank you If you have any questions about Codat please do contact us or visit our website www.codat.io [email protected]