Micro-lending entrepreneurship with Michael Ly from Reconciled and PunchPay
Michael Ly, founder of Reconciled and PunchPay, developed his entrepreneurial drive from observing his Cambodian refugee parents and the Cambodian American community.
Reconciled was born from Michael’s CFO work, where he found that many small businesses lacked proper bookkeeping practices. Now, Reconciled is growing by acquiring smaller bookkeeping firms.
PunchPay is a micro-lending service that serves the ‘underbanked’: businesses that are too small for traditional bank loans but are still in need of capital.
For Michael Ly, entrepreneurship is in his blood.
Born in Arizona to Cambodian refugees, Michael witnessed the immigrant work ethic firsthand in his parents and in the Cambodian American community. Because they couldn’t speak any English when they immigrated, getting middle-class, white-collar jobs was impossible.
But that didn’t stop them from building the future they wanted for their children—his father worked in restaurants while his mother ran her own seamstress business. That scrappy, entrepreneurial spirit was contagious. Today, Michael and all of his siblings have their own companies.
“My parents were both entrepreneurs. When I think about my identity, I would introduce myself as an entrepreneur first to most people, and then I would tell them that I happen to be in the accounting profession,” Michael says.
It wasn’t just his parents’ entrepreneurship that led Michael to starting Reconciled and PunchPay. It was his now brother-in-law who hired him to do data entry at an accounting firm when he was in high school.
“I think he was excited that he was able to train a young person in accounting. I was on my way to probably become a doctor or an engineer, which was what my parents wanted. My brother-in-law exposed me to the world of business instead,” Michael says.
Michael shares his journey with Karbon CEO and host, Stuart McLeod, on episode 47 of the Accounting Leaders Podcast, including how he started Reconciled and how he plans to grow it. Plus, Michael discusses how he’s serving small businesses with micro-loans.
Beginning the reconciliation
Michael’s online bookkeeping service, Reconciled, wasn’t necessarily on the path he saw himself on.
While working as a part-time CFO for small businesses, he found that although many of his clients had successful business models, their books were a mess. The person who ended up cleaning up their books was often him—and at a CFO’s pay rate. It opened Michael’s eyes to the need for accessible bookkeeping services for small businesses.
“I was thinking I could do more CFO work if I solved the bookkeeping side. [So] I launched Reconciled in the beginning of January 2016, and then we grew very fast,” Michael shares of the company’s beginnings.
He eventually accepted that the bigger opportunity wasn’t in CFO work, but in providing cloud-based bookkeeping services—and Reconciled hit the wave of cloud accounting just right.
According to Michael, “The mid-2010s were a good time to launch a cloud accounting business here in the US, with the adoption rate of cloud technology.”
As a cloud-based business, Reconciled’s workforce has been remote from the start. Michael is grateful for the arrangement, as it allows him to split time between his Vermont home and where his mother lives in Arizona.
The company’s roughly 70 employees are spread across Vermont, North Carolina, and South America. Like many remote firms, Michael makes an effort to get his team together annually to build camaraderie.
He credits the company’s ever-evolving tech stack with providing work flexibility. In addition to Karbon, the company uses Liscio, Google Workspace (formerly G Suite), QuickBooks Online, Bill.com, Dext, and of course, Zoom and Google Meet.
“We find that because of our growth rate, we often are outgrowing our tech. Our needs change, and we have to look for new tools,” Michael explains.
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Serving the underbanked
In a separate business venture, Michael helps small businesses in another way. His company PunchPay provides micro-lending services—loans under the threshold that larger banks accommodate.
“In the US, many small businesses operate in the ‘banking desert’,” Michael explains on the podcast. “If you don't need a $10,000 to $40,000 loan, most banks and credit unions don't want to deal with you. We serve what we call the micro-lending population that needs a small amount of funds to get their small business going.”
According to Michael, businesses in the banking desert can typically only access credit cards with high interest rates. PunchPay is similar to a ‘buy now, pay later’ option, but repayment is made after cash flow starts coming in. Repayment terms tend to be six to nine months with a flat 2% per month fee.
Micro-lending allows PunchPay to serve what Michael calls the “underbanked”. These are businesses that earn $250,000 or less in annual revenue. They’re not strong contenders for traditional bank loans or venture backing, but have financial needs nonetheless.
Accounting comes in handy with making micro-lending decisions. PunchPay uses QuickBooks data to quickly determine a business’s loan eligibility.
“We know accounting data. We have access to it. We know how to analyze it, and we can see that there are a lot of healthy businesses out there,” Michael says. “They're just not big, and they don't need big amounts of capital. They need simple access to a small amount of capital.”
Reconciled’s growth strategy in recent years has focused primarily on business acquisitions. In the last two years, the company acquired three other bookkeeping and accounting firms. And Michael’s still hungry for more.
“We're looking for firms doing at least $100,000 a year, up to $3 million to $4 million. We have criteria that we use to evaluate every firm. We're definitely looking for ones that are using the cloud and have a strong brand.”
For example, he shares how a recent acquisition of a company in Tennessee was ideal because it was already cloud-based and had a remote team and HR consulting arm.
But not all boxes need to be checked for Michael to consider a company as a potential acquisition candidate.
“We’ve also had ones that are just starting on the cloud journey. So they end up merging into us so that we can take care of that cloud migration and that remote work migration,” he shares.
As for PunchPay, the market’s volatility will predict how things look over the next year.
“As the fintech market has taken a pullback, we're being methodical about how we approach growth,” Michael says.
As an American entrepreneur, Michael’s proud to serve small businesses with both Reconciled and PunchPay. For him, his career is a way to not only honor the hard work and sacrifice of his immigrant parents, but also help the next generation of American dreamers.