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This is a complete guide to SaaS business budgeting and tax-saving tips for SaaS business owners in the US.

In this guide, you will learn:

  • What is the marketing budget for SaaS businesses in the US
  • How to categorize expenses in SaaS business
  • Factors to consider for creating a B2B SaaS marketing budget
  • Ways to reduce business expenses for SaaS companies
  • Tax planning tips for SaaS businesses
  • If you want to learn in detail about SaaS business budgeting and tax planning, you have come to the right place.
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    CHAPTER 1:

    What does the marketing budget for SaaS businesses in the US mean

    Budgeting for your SaaS business entails much more than merely assigning funds to various categories. To get the most for your money, you need to prioritize your expenditure.
    Before you start creating a budget for your SaaS firm, there are a few key financial fundamentals you need to understand.
    Keep reading this chapter to grab the knowledge about SaaS business sales tax, budgeting, its importance, and a lot more.
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    What Is The Need For SaaS Budgeting

    Even while your product is still in the development phase, budgeting for your SaaS business is one of the most crucial activities that you must complete. Checking the cash burn or operational income at the end of each month is crucial to figure out where the majority of your funds are going. Additionally, if you are a startup, it's likely that you don't have unlimited funds available. Thus, if you do not keep track of your finances, your SaaS company is in serious difficulty. Every business needs to have a flexible budget and periodically assess its ability to keep it, regardless of how effective its sales are or how quickly its growth rate is.

    Every single dollar you put in your SaaS company or a startup, in general, should be used wisely. Therefore, get down with your finance team and go over each area of your company to determine where more cash outflow is needed and where there is an excess that has to be checked.

    The Importance Of SaaS Budgeting

    A business budget is a thorough strategic plan that assigns a specific task to each dollar you have. Your company budget will examine how you spend your money on a monthly or annual basis. You can evaluate your performance by comparing your monthly business budget to how you really spent the money. With the aid of a solid business budget, you can forecast your revenue and then plan how to spend it. A few investments may appear simpler to make than they are at times. As a result, creating a SaaS business budget enables you to make decisions that are more grounded in reality. 

    Elements To Include In Your SaaS Business Budget

    You must create a precise budget for your SaaS firm that includes only basic calculations but nevertheless enables you to comprehend the present state of your business' finances. The following essential items will make up the bulk of your SaaS budget-

    • Expected revenue
    • Fixed cost
    • Variable costs
    • One-off costs
    • Cash flow
    • Profit

    CHAPTER 2:

    How to categorize expenses in SaaS business

    You can learn how to categorize expenses in a SaaS firm by reading this chapter. If you are accurately categorizing spending, you can tell right away.
    As a result, there are four different headings for the SaaS expenses:
  • Cost of Revenue, Cost of Goods Sold, or Cost of Services
  • Research and Development (R&D) or Engineering
  • Sales and Marketing
  • Administrative Expenses
  • Let’s learn about these categories in detail…
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    Introduction To SaaS Business Expenses

    The fees you incur to operate your SaaS business and make sales are known as SaaS expenses. It's crucial to group expenses into the correct categories. This is due to the fact that it provides you with a clear picture of your spending habits. Similar to how proper spending categorization aids in determining precise SaaS metrics and carrying out proper forecasting.

    You need to know that the foundation of forecasting and establishing critical indicators are appropriate for categorizing spending. And a lot of SaaS companies are incapable of doing that properly. And that's where they struggle when forecasting, calculating crucial KPIs and filing taxes.

    Every time you promote, pay staff, purchase office supplies, etc., you have an expense. You may establish precise budgets, pay the correct amount of taxes, and even find possibilities to save money by properly classifying these spending under several headings.

    Let’s have a look at each of these categories in detail.

    Categories Of SaaS Business Expenses

    • Cost of Revenue
    The direct costs for providing services to clients in the case of SaaS enterprises are referred to as the cost of revenue, also known as cost of sales, cost of services, or cost of goods sold (COGS). For your SaaS company, you can categorize costs associated with the cost of goods sold in the following ways:

    • Hosting and monitoring cost
    • Payroll for support
    • Cost of developer operations
    • Software and tools
    • Merchant fees
    • Research and Development
    The expense incurred for creating, maintaining, and improving the SaaS product is known as R&D cost. You must pay this to the engineers and developers in addition to the price of creating the product. However, you pay them to gather data, analyze it, and develop fresh features and approaches to problems your business faces with software, procedures, etc.

    You must have a specific research and development strategy in place if your business is in the technology industry. This is because it will enable you to develop superior SaaS solutions at the most competitive costs before your rivals.

    Now, you can either decide to spend money on R&D to improve your present SaaS products, add new features to them, or keep them the same.

    If not for the current SaaS products, R&D expenses may be used to create brand-new items that could be introduced into whole new markets.

    • Sales and marketing cost
    The expense you incur to promote your SaaS solutions to increase sales and income is known as sales and marketing costs. It is the price you pay to get your product in front of the appropriate target market at the appropriate moment and in the appropriate manner.

    For a SaaS provider to succeed and outperform the competition, tangible marketing initiatives are crucial. However, many SaaS companies are confused about how to categorize expenses and how much money should be spent on sales and marketing.

    This is due to their lack of clarity regarding the marketing and sales channels they should focus on, or the fact that they only care about SaaS products. As a result, they wind up spending less on marketing and expanding by a negligible amount.

    This benefits their rivals who invest wisely in marketing and sales to attract new customers. Customers are very likely to stick with the product rather than switch to the competition if we look at B2B SaaS suppliers. This is due to the fact that switching Saas providers are more expensive than remaining with the current one.

    • Administrative expenses
    The overhead costs that your SaaS company incurs to carry out its regular business activities are known as general and administrative charges.

    The following are some examples of general and administrative costs for SaaS:

    • Internet utility bills
    • Office lease
    • professional services such as legal and consulting
    • Costs associated with purchasing office supplies
    • Insurance
    • Travel, etc.
    Additionally, there are some G&A costs that have a fixed nature. In other words, even if your SaaS company doesn't sell anything, these costs will still be incurred. These include costs that must be incurred even if there are no new clients, such as rent and energy.

    In a similar vein, certain G&A expenses are semi-variable and shift in response to shifting demands. You might, for instance, occasionally want professional or legal services.

    As a result, you may choose higher agencies for the same recipients of your contributions. However, once your work is finished, you can discontinue using their services.

    To get into the depth please read How to Categorize Expenses in a SaaS Business?

    CHAPTER 3:

    What factors to consider for creating a B2B SaaS marketing budget

    Creating a marketing budget for a SaaS business isn’t that easy. Thee are a number of factors that you need to keep in mind while creating a B2B SaaS marketing budget.
    In this chapter, you will get to learn about it in detail.
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    Factors To Be Considered While Creating B2B SaaS Marketing Budget

    You should take the following factors into account when designing your B2B SaaS marketing budget:

    • The Best Marketing Channels for Returns
    As a SaaS supplier, you must do your research to find the marketing channels that are most effective for your sector. For instance, SaaS companies benefit most from and see the largest returns from thought leadership SEO. Establishing your brand by consistently producing high-quality content about your SaaS solution will help your business attract high-quality leads.

    You would have to create content that communicates stronger viewpoints that are supported by evidence.

    • Required Time and Work to Maximize Potential Returns from the Channel
    Here, you need to take into account how long you will need to continue working on a specific marketing channel in order to realize its full potential.

    That is the amount of work and time required to maximize the potential for lead generation from that channel.

    • Benefits Related to the Marketing Channel That Are Incidental
    These are the additional benefits to the main ones you would get from using a specific marketing channel.

    For instance, your PR efforts might benefit from your growing domain authority on Google. Similar to this, frequent LinkedIn posting may raise target audience involvement. They might leave insightful remarks in the form of questions or doubts that could turn into webinar topics.

    CHAPTER 4:

    What are the different ways to reduce business expenses for SaaS companies

    You probably don’t place the highest focus on bookkeeping as a SaaS business owner. You should concentrate on managing and expanding your company, especially if it is still in the startup phase. To survive, every firm must have enough operating capital. Businesses might quickly experience cash flow problems due to high operating costs.
    In the end, even if bookkeeping may not seem like a glamorous job, it is crucial to perform it correctly for the success of your company. Keeping accurate books is essential to figuring out where you may make savings.
    Here are the different ways to cut costs at your SaaS business…
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    Ways To Reduce SaaS Business Expenses

    • Make a budget and follow it
    The most crucial tool for keeping a close check on business spending is budgeting. Where to cut costs that can't be tied back to the budget will be clear to you. It is typical to have a budget for each department that is combined into an overall budget for the business.

    You must make clear the appropriate upper boundaries for specific business expenses to team leads when they develop their department budget. For instance, a daily cap of $75 for business meals or a maximum of $200 per night for hotels while traveling for work. Each team should be aware of its spending limit and realize that it is its responsibility to keep track of its expenses and stay under it.

    • Back office tasks might be outsourced to reduce costs
    Headcount is valuable when business expenses reach the millions (which is simple to do with expanding SaaS enterprises). Hiring full-time workers result in higher overhead expenses, a set wage, benefits, and pensions, among other things. Businesses can cut costs by outsourcing non-core operations like bookkeeping.

    If you spent the effort to make a budget, you'll want to know if staff is following it and if all the spending is actually necessary. Your monthly books must be correct and current in order to accomplish this; an external bookkeeper will take care of this for you.

    • Save cost on overhead
    Rent is most certainly one of your main business expenses because office space is pricey.

    If the COVID-19 pandemic has taught us anything, it's that even the most conventional office jobs can be performed from home, often with no negative effects on worker output. In fact, a Stanford University study of 16,000 employees over a period of nine months revealed that working from home enhanced productivity by 13%.

    Despite having the option to reopen their offices, countless businesses have opted to downsize, keep their employees' current work-from-home arrangements, and save a significant amount on rent.   There are many ways to help reduce the amount of office space required even if allowing all employees to work from home full-time is not an option:

    • Reduce the size of the workplace physically, rotate which people work from home, and provide hot-desking for those who must remain there.
    • Get rid of the office altogether and relocate to a coworking facility, paying only for the desks you really use.
    • Maximize your tax deductions
    Keeping correct records is crucial whether it comes to fundraising or utilizing government tax credit schemes. Keeping track of all expenses allows you to deduct them all together and reduce your tax obligation. Even minor expenses might add up.

    In order to manage all SR&ED qualified expenses individually as part of your regular SaaS bookkeeping procedures, your chart of accounts must be set up if your SaaS business qualifies for the Scientific Research and Experimental Development (SR&ED) tax incentive.

    As a SaaS company, you require a well-managed SaaS accounting system that can expand with you as the number of subscriptions rises. You also need accurate expense tracking to make sure that you are not only minimizing or eliminating unnecessary expenses but also deducting them all to maximize your tax savings.

    • Maximize available grants
    SaaS businesses and startups require cash. There are several ways to get money for your company, including bank loans and venture capitalists, but you may also take advantage of a lot of government grants.

    Since these subsidies are meant to encourage innovation and pay for business expenses like recruiting training, and research and development, they frequently don't need to be paid back. One illustration is the Industrial Research Assistance Program (IRAP), which offers financial assistance to small business owners that want to innovate using technology.

    Make sure your books are up to date and that you have prepared recent financial statements if you want to increase your chances of obtaining a grant accepted. Funders could also want a grant budget to understand your spending plans once the funding has been granted.

    CHAPTER 5:

    What are the tax planning tips for SaaS businesses

    At year’s end, many businesses will owe taxes. The majority of business owners, however, accept this as a fact of life and pay whatever the government or their accountant instructs them to pay.
    This kind of planning aims to provide tax efficiencies that lower a company’s tax obligations and result in financial savings.
    In this chapter, you wil learn how to effectively do tax planning.
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    Introduction

    The timing of revenues, together with purchases and other expenditures, is what tax planning examines in the most detail.

    For instance, if your business tax rate was 30% and you earned the US $100 in profit in December 2016, your total tax liability would be US $30. However, with careful tax planning, you may be able to legally shift the timing of your revenue streams, deferring the US $100 profit until January 2017, which will cost you $30 less in 2016.

    The advantages start to become clear as soon as you scale this concept up to millions of dollars.

    Steps For Effective Tax Planning For Saas Businesses

    • Research and development (R&D) costs can be used to offset payroll 
    The majority of new businesses can now claim an R&D credit to reduce payroll taxes paid for the year. For instance, in the United States, up to US$250,000 of the employer portion of the Social Security tax paid on wages may be refunded using the credit. The business must have had sales under $5 million in the prior year in order to qualify for the startup part of this credit. Whatever the entity structure, this credit is offered to businesses.

    Typically, taxable income is offset by tax credits. Most startups are either pre-revenue during initial operations or don't have taxable income to be offset by credits, thus this isn't advantageous for them. However, entrepreneurs will be able to free up cash from their R&D spending by avoiding payroll taxes thanks to the R&D tax credit, for instance.

    • Equipment Purchase Deduction
    For further tax savings, the cost of any new equipment your SaaS company buys during the year may be entirely deductible. A new computer to handle your tech development code or a desk and chair for a new employee is just a couple of examples of the kind of purchases we're talking about.

    Typically, your business must have taxable income in order to qualify for this deduction. Bonus depreciation is an option if your firm is in the pre-revenue stage or doesn't generate taxable income. With this bonus depreciation, you can deduct 50% of the cost from your taxes for the current year and the remaining 50% over subsequent tax years.

    • Take Startup Costs Into Account 
    Your SaaS company may profit from the ability to write off starting expenses. In the US, the first $50,000 spent on launching a business—which includes things like lawyer expenses, etc.—can be written off as a tax deduction.

    • Gain Deferred Tax Assets from Losses
    A firm typically has a deferred tax asset when it overpays or pays its taxes early. The asset, which appears on the balance sheet, is a way to reduce taxes.

    By rolling over a loss from one period to the next, your SaaS company can establish a deferred tax asset, which decreases a business's tax burden. For instance, if your company had a loss in the previous fiscal year, it may use that loss to pay less tax the following year.

    CHAPTER 6:

    Final Key Takeaways

    In this chapter, we will recall some of the important points associated with SaaS business budgeting and tax-saving strategies.
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    Let’s Recall Some Important Points

    A business budget is a comprehensive strategic plan that gives each dollar you have a defined task. Your company's budget will look at your monthly or yearly spending patterns. By contrasting your monthly business budget with your actual spending, you may assess your performance. You can forecast your revenue with the help of a strong company budget, and then decide how to spend it. Certain investments could seem easier to make than they actually are at times. Making a SaaS business budget gives you the ability to make decisions that are more based on reality.

    In order to reduce the tax burden, it is important to do tax planning efficiently. There are a few steps that you need to follow for tax planning including:

    • Research and development (R&D) costs can be used to offset payroll
    • Equipment Purchase Deduction 
    • Take Startup Costs Into Account
    • Gain Deferred Tax Assets from Losses

    CHAPTER 7:

    FAQs

    Do you have any queries related to SaaS business budgeting and tax planning? This chapter is a must-read for you.
    Here are some of the most frequently asked questions that we have answered.
    Keep reading…
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    What Does Tax Planning Exactly Mean?

    Your SaaS company can use tax planning services to examine and create a strategy for paying the least amount of taxes necessary under the law. Your SaaS company can use a number of tax planning techniques to minimize its federal and state tax liabilities.

    Even if it can be advantageous for the current year, tax planning is also a long-term tactic for boosting profitability and efficiency. To be eligible for every chance to lower your tax bill, tax planning needs proactive measures throughout the year.

    How Tax Planning Is Beneficial For SaaS Businesses?

    Your tax professional can develop a successful tax strategy by evaluating and analyzing the costs and revenues of your company in order to:

    • Reduce corporate tax liabilities
    • Streamlining operations
    • Increasing corporate profitability

    Conclusion

    Services for tax preparation will result in substantial financial savings over time. By effectively implementing these tactics, you can drastically lower your tax obligation.
    Free Cash Flow is a tax advisory company that has extensive knowledge of the SaaS IT sector. With comprehensive tax planning, we assist both small businesses and large corporations in maximizing their tax savings. We also comprehend the SaaS industry and the difficulties SaaS startups encounter.
    Get in touch for assistance.
    9 3 1

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