Bookkeeping For SaaS Companies – What Method Should I Use For My Company?
The accounting systems that rely on manual processes, spreadsheets, and delayed reporting will have no efficiency in work. As the SaaS businesses grow, the manual process and accounting systems will not work as expected and will slow down the business growth.
Software is one of the fast-growing industries in the world. As we move into the digital world, Software as a Service (SaaS) is becoming increasingly popular and profitable. For this reason, SaaS startups have to find the right accounting system from day one to handle it properly.
Since SaaS companies generally operate as subscription businesses, it needs proper accounting solutions with appropriate infrastructure and experience to support the SaaS companies’ needs seamlessly.
In many cases, startup businessmen don’t prioritize accounting when working to grow the business.
They would concentrate more on creating new products for business growth and building a great team to support it. But sooner, when the company starts to grow, the accounting will be a mess since they would not have handled it correctly from the beginning.
What makes SaaS accounting different from others?
Revenue tracking is one of the most notable differences in SaaS accounting because of SaaS businesses’ subscription models. Customers are usually charged the subscription and add-on services fees that require regular maintenance as customers upgrade, downgrade, or opt-in/out of the different services.
Hence, SaaS businesses must use different accounting tools, such as subscription management tools and recurring billing platforms, which need other skills and knowledge of best practices than traditional business accounting. One of the significant challenges in this accounting is how the software providers manage their orders to cash process, share, and use the financial metrics internally.
Industry-specific Bookkeeping for the SaaS Company:
You can take the business to the next level with professional Bookkeeping for SaaS companies. This will also lower the tax burden and will keep you always investor-ready. While running a SaaS company, you will know the value of innovation to stay competitive.
A solid financial foundation will give you the competitive edge you seek. With professional industry-specific bookkeeping services, you can take the company to the next level by maximizing the tax credits and preparing the report for the audit.
Maximize the R&D tax credits.
The build-it and break-it phase in SaaS companies might be less oblivious, but it is no less critical. It’s crucial, and the R&D tax credits encourage ongoing technology development. Best of all, the path provisions are retroactive, which means if you weren’t aware that you could claim the R&D tax credits till now, you can amend your returns for the past three years and take advantage of the development costs.
Understanding which expenses qualify for the tax credits and knowing what documentation is required may be complex. You can empower the company to quickly claim the R&D tax credits by working with the CPS and bookkeeping service provider to establish the system for identifying and tracking the qualifying expenses.
Always be investor-ready
Though not planning to sell the business, you should follow the generally accepted accounting principles to make the firm more attractive to investors and buyers. This will help in the right situation if you ever decide to sell the company.
But why? For one thing, before financial institutions or venture capitalists invest in a company, they wish to get the assurance that the company follows the proper accounting and bookkeeping practices. If your SaaS company collects the fees for the software subscription in advance, you should adequately defer that revenue using the accrual method for tax purposes.
So, what is deferred revenue? It is the income you will receive before technically earning it. With subscription-based services, you will receive the payment before supplying the benefits to the customers.
When you use accrual-based accounting, you will have financial documents that clearly state the amount of services offered to the customers. The investors can quickly identify the benefits they would be contractually obligated to deliver and evaluate the ability to do so.
Not only for investors, it also helps you see what you must do to fulfill the obligations to your customers. For example, you will know if you need more materials or staff to deliver the services you need.
Always be prepared with the professional Bookkeeping
You don’t need to bring in professional Bookkeeping for SaaS companies only at a critical time. You can use the services and establish the bookkeeping processes from the beginning that will help you ensure that your SaaS company’s records are updated and accurate. This will provide the financial insight you need to run a business successfully.
High Growth SaaS Business & Accounting:
Here are some reasons why high-growth SaaS companies need good accounting:
- Even minor changes in churn or other user metrics may drive massive swings in cash flow.
- The executives can make better decisions when they use reliable data.
- Understand and project the working capital, especially regarding the deferred revenue. If appropriately managed, it may help the company reduce the need for outside venture capital.
- Good accounting is required for sales and state and federal taxes.
- Revenue recognition is challenging but essential, especially when selling the business to a prominent investor or raising millions of dollars in venture capital financing.
What type of financial statements does your SaaS company need?
SaaS companies need to produce three primary financial statements regularly. They are the Income statement, Cash Flow Statement, and Balance sheet. Additionally, bookings, ARR, and many more are essential.
The five things which make SaaS accounting difficult are revenue recognition, sales tax, understating the gross profit, customer refunds, and deferred revenue. But this can be handled by the best bookkeeping services.
This service lets you know the basic account details monthly without any extra burden. This will help manage the cash flow and provide less stress when considering upcoming expenses.
What to look for in a good SaaS accountant?
Getting the best Bookkeeping for SaaS companies can be challenging, but not always. The right accountant will know that even a tiny error will create a big problem for the company. Hence, with the automated Software and experienced accountants, the company will be focused on the tasks.
The automated Software will save you money through labor savings. The best accountant will understand the complications of revenue recognition, GAAP expense recognition, and many more. Since they are specialized in this business model, they will help you think through the cash implications of different pricing and billing plans.
Information over performance is vital for every SaaS company. Financial performance metrics will allow better pricing decisions and clarity on whether the business model works. The organized financial statements will provide the basis for forecasting and result in less delay in raising funds for business development. Thus use the bookkeeping services for SaaS companies to keep your business on track.