Bookkeeping For SaaS Companies – What Method Should I Use For My Company?

bookkeeping for SaaS companies

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, the Software as a Service (SaaS) is becoming more and more popular and profitable. For this reason, SaaS startups have to find the right accounting system from day one to handle it properly.

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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 they are working to grow the business.

They would be more concentrated 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.

Software as a Service

What makes SaaS accounting different from others?

Revenue tracking is one of the most notable differences in SaaS accounting because of the subscription model used by SaaS businesses. Customers are usually charged the subscription fees and the add-on services fees that require regular maintenance as customers upgrade, downgrade, or opt-in/out of the different services.

Hence, the SaaS businesses must use a different set of accounting tools, such as subscription management tools and recurring billing platforms, which need a different set of 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 order 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 that the value of innovation to stay competitive.

A strong financial foundation will give you the competitive edge which you are looking for. With professional industry-specific bookkeeping services, you can take the company to the next level by maximizing the tax credits and preparing the report ready for the audit.

Maximize the R&D tax credits

The build-it and break-it phase in the SaaS companies might be less oblivious, but it is no less important. 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, then 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 difficult. 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 you are 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 the 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 in advance for the software subscription, you should adequately defer that revenue using the accrual method for tax purposes.

So, what is deferred revenue? It is the income that you will receive before you have technically earned it. With the subscription-based services, you will receive the payment in advance of supplying the services 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 easily identify the services they would be contractually obligated to deliver and evaluate the ability to do so.

Not only for investors, but it also helps you clearly see what you will need to do to fulfill the obligations to your customers. For example, you will know if you need more materials or staff to supply the services you need to deliver.

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 the massive swings in cash flow.
  • The executives can make better decisions when they use reliable data.
  • Understand and project the working capital, especially as it relates to the deferred revenue. If managed properly, it may help the company reduce the need for outside venture capital.
  • Good accounting is required for sales taxes, state taxes, and federal taxes.
  • Revenue recognition is a challenging one, but it is essential, especially when selling the business to a prominent investor or when raising millions of 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.

Through this service, you can know the basic account details monthly without any extra burden. This will help manage the cash flow and provide less stress when it comes to thinking about the upcoming expenses.

SaaS accounting

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.

Final Thoughts:

Information over performance is vital for every SaaS company. Financial performance metrics will allow making better decisions over pricing and clarity on whether the business model works. The organized financial statements will provide the basis for the 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.

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