GlobalFintechSeries Interview with Shahar Plinner, CEO and Founder at Formations US, LLC

According to Shahar Plinner, CEO and Founder at Formations, an early-stage fintech start-up, the three major technology trends impacting new fintech innovations are digitization of financial activity, big data, and artificial intelligence. Catch this complete story where Shahar discusses his journey as a fintech entrepreneur and what challenges in the industry led to the creation of the Formations platform.

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Can you tell us a little about yourself Shahar? Given your time in finance/fintech – we’d love to hear about your thoughts and observations on how you are seeing this segment shape up and how you’ve seen it evolve over the years?

15 years ago, I moved to Seattle to practice US taxation. I found a complicated system, almost broken where the unknown is much greater than the known. Most taxpayers don’t understand the basics of how income is taxed, and deductions are written off. A few years later, I started my own practice – GPL Tax and Accounting – and built it into a 3,500-customer operation serving a wide variety of clients. I realized that working with W2 employees and medium to large businesses was easy, but the system is not equipped or designed to serve the self-employed segment and is leaving them behind, underserved.
Yet, the solopreneur market is quickly becoming the largest workforce in the US and is still underserved and doesn’t have the tools to thrive in today’s economy. This segment overpays on taxes, gets no financial guidance, has no access to benefits corporate employees have, and receives no representation as a group. The 1099 contractors and professionals who want to start their own business – a rapidly growing industry – deserve the same privileges and benefits as the W2 employees.

Read More: How the Crisis-Fuelled Digitization of Banks Will Spark Long-Term Customer Loyalty

There are over 40 Million self-employed in America, and the trend is only growing. The millennials and baby boomers have discovered the advantages of independent and mobile work style, and enterprises are enjoying the benefits of lower employment cost and flexibility of growth and expertise. This trend drives innovation in gig-economy platforms and other solutions that support the gig economy and self-employment, but the financial industry is legging to provide adequate support for self-employed. Data shows that self-employed continue to be left behind when it comes to their back-office. 45% still do their own accounting. 25% still manage their books on paper! And 90% are mismanaging their taxes and accounting practices.

We’re seeing increasing demand from the self-employed for solutions that can support their back-office needs, so they can focus on their core competency. We believe that the next wave of innovation will be in this area of solutions and automation.

How do you see emerging tech play a key role in how newer fintech innovations are built/developed?

We see three major technology trends impacting new fintech innovations: digitization of financial activity, big data, and artificial intelligence. The entire financial industry is going through a digital revolution moving to almost entirely digital activity. Payments, banking, money transfers, and even micro-transfers are being digitized. The amount of physical money is shrinking while digital transactions in general, and mobile transactions specifically, are growing at a 10%-15% year over year. This trend makes the tracking, collection and organization of financial data easier and faster and allows fintech solutions to provide more accurate picture of transactions. Data hygiene, which used to be a major issue for fintech, is slowly becoming a solved problem, making way for the next evolution of financial data – insight and strategy.

With data collection and hygiene being mostly solved, big data technologies can be applied to the massive amounts of financial data collected from consumers and business activities. Large scale data storing and indexing, analysis and reporting, as well as pattern matching and anomaly identification, all can be applied to financial data and utilized in new fintech solutions. Insight and recommendation will also enable another set of technologies to be developed – AI.

With structured data in place and advanced analysis that yields “automatic” insight, financial solutions will start utilizing AI to first recommend and later take action on behalf of users to optimize financial decisions and activities. Similar to how algo trading and quant trading has become popular, Fintech solutions will utilize AI (and machine learning) and in the future will make most of the basic financial decisions automated.

These emerging technologies are part of the evolution of technology, moving from an enabler of activity to the recommender of activities, and later to the performer of activities.

Read More: How Do Global Banks Use Fintech to Enhance Customer Experience Models?

We’d love to know how the idea behind Formations US, LLC first came about and how the platform enables better finance management for self-employed people

Formations was founded from a dual pain. The pain of the professionals (CPA / Accountants / Bookkeeper) that do not have the right “tools” to properly serve the self-employed, and therefore rather serve W2s , and the pain of the self-employed who were interacting with a complicated system that made them ignore their options, and choose the “easy” but not financially efficient solution.

Many of the people I met while practicing tax and accounting, left thousands of tax dollars on the table when they filed their annual taxes.  They waste hours trying to understand what they need to do instead of how to do it. The process involves a high level of anxiety, and many reported a lack of sleep from a fear from the government.

I felt frustrated but passionate and optimistic at the same time. On one hand there was a lot of waste and inefficiency in how taxpayers report their taxes.  On the other hand, there was a huge opportunity to help people fix the existing problems, bringing a fresh breath to such an old fashion and antiquated industry.

I recognized an opportunity in a segment of GPL’s clientele which I personally liked the most.  The Self Employed, solopreneur, freelance, gig and those who choose to work for themselves as a lifestyle.  As a Tax Guru and entrepreneur, I wanted to help my clients, but it was just complicated.

If the tax system is convoluted for the individual taxpayer, the tax system for the SE is a complete nightmare. From choosing the right entity structure to manage the ongoing accounting, setting payroll, filing business taxes, deciding on benefits like Health Insurance and 401K – is a recipe for disaster.

In my 15 years of experience researching the tax code, I master the US corporate tax world. Formations is an Easy-to-use, tailored tax solution for self-employed.  It optimizes automated and AI driven bookkeeping, payroll, taxes and benefit throughout the year. Our goal is to create a movement of SE to stop the overpayment of taxes and keep the hard-earned money in the hands of the SE community for better consumption, investment and retirement.

S-corp. is the only entity that allows Self Employed individuals to be their own employee. By doing so, s/he enjoys the best of both worlds – the flexibility to work for themselves, lifestyle and quality of life, and the benefit to be an employee for tax purposes with payroll and W2.  This allows better control for the self-employed taxes and gives access to the benefit plans that only “big” corporate America can offer to their employees.

Read More: GlobalFintechSeries Interview with David Neveceral, CEO & Co-founder at Spendee

Can you also share your thoughts on other technologies/platforms in the marketplace that are game changers when it comes to enabling seamless finance/tax management for small business owners?

There are many platforms that have been a game changer and have allowed the concept of Formations to be created: 

• Incfile – makes the incorporation process seamless and easy. Provides all the legal needs for years to come.
• Gusto– turns the payroll process into an easy to manage, automated system that keeps you compliant and opens up the possibilities of tax savings in your S Corp
• Hubdoc +Xero – seamlessly connects to your bank accounts to automates the bookkeeping and compliance process and provide you with the most up to date information about your business financials.
• Practice Ignition –manages legal engagements. Once you close the deal, you can sign the engagement in minutes.

All these fintech companies have converted tax and accounting into an easy SaaS methodology.

What are some of the top in-demand features that users should look for when identifying a fintech platform or solution that can help integrate and collate their business finance details?

I would say they should ask a few questions:

1) How does the software work with my bank?

2) Can this software handle more than just bookkeeping? Will it do payroll & benefits? Bill pay?

3) What kind of reporting can it produce? Will it do a balance sheet, or does it just catalog your income/expenses?

Those features should be applied to expense classifications, mileage tracking, easy banking, and credit card access. The software should be a holistic one, that supports more than one solution.

What are some of your thoughts on how the current world situation will impact the use of (and development) of the fintech segment globally?

I believe that traditional industries like the bookkeeper / CPA agencies that won’t adjust and move to cloud based services will disappear. The world is changing and developing and those who will stay behind will no longer exist.

Businesses that will not adjust their back office and update their structure to work digitally and adapt cloud-based tax & accounting will have hard time finding service providers and will struggle financially.

Tag (mention/write about) the one person in the fintech industry whose answers to these questions you would love to read!

Jessica Mah and Dan Price. Both are young fintech entrepreneurs

Your favorite FinanceTech  quote

“At the end of the day, customer-centric fin-tech solutions are going to win.”– Giles Sutherland, Carta Worldwide

Giles Sutherland is the Chief Commercial Officer in CARTA worldwide. He leads Carta’s global strategic initiatives.

Would you like to share specific finance or business tips for Marketing and Sales/Finance teams struggling through this uncertain time?

I’d like to quote judge Learned Hand: “In America, there are two tax systems: one for the informed, and one for the uninformed. Both are legal” My advice would be – build a dream team that will keep you informed!

Every professional has a dream team around them – every sports professional and every business professional. They make sure they have a team that supports them in every step.
If you want to thrive as a self-employed business, you have to have professionals to guide you. You need a professional finance “coach”, so you have a better chance to save money and succeed.
I Think most Self Employed are too busy with their day to day tasks, and they often neglect their biggest business expense: Taxes. They fail to understand that this is their largest expense, and because it is complex, and takes a lot of effort to learn and stay up to date, they give up and leave it unmanaged. Use this methodic pause in life when business is slow to set your business financial foundation in order. If you are not an S Corp by now, incorporate, clean your bookkeeping, and build your “dream team”.

Also Read: Leveraging Automated Accounts Payable Solutions for Business Continuity