How to make your revenue grow with SaaS accounting
Feb 10, 2022
Why Is SaaS Accounting Important?
Accounting helps drive strategic decisions. However, B2B SaaS founders often don’t prioritize accounting, as they’re more focused on creating a great product.
But as you’re scaling, more revenues mean more complexity in your accounting, especially for SaaS businesses. Thus, the sooner you consider your accounting options, the better (it’s less stress and financial mess afterward!).
While accounting is usually outsourced during the first stages of a start-up, its importance will grow alongside your company, and so will the need for internal tools to scale.
Good accounting software will provide relevant financial insights on your business revenue and operations.
And for a fast-growing B2B SaaS, having access to this data can often make or break the business.
How is SaaS Accounting Different?
SaaS accounting is different from accounting for more traditional types of B2B businesses:
For one, SaaS companies often deal with higher volumes of sales, so there are more transactions to process. Tracking each and every operation can quickly turn into a lasting nightmare without some automation.
B2B SaaS companies can offer a wide range of products, from a simple plan to customized solutions for enterprise clients. They often have a subscription model based on a tiered plan, or on the usage done of their cloud computing service. Users are free to jump from one subscription plan to another depending on their current needs.
SaaS also charge setup or training fees, accounting management fees, and deal with discounts, coupons, and various add-ons. Since SaaS companies rely on a subscription model, they have to deal with deferred revenues and need to know when to recognize revenue.
All of this translates into more complicated accounting processes.
And accurate and real-time financial reporting is important for SaaS businesses as it will help you make the correct decision for your long-term planning.
Aligning Your Accounting With Top-Line SaaS Metrics
As we’ve seen above, the point of accounting isn’t only compliance. It is also primordial for B2B SaaS to drive their revenue expansion. And your current SaaS accounting solutions and tools should help you do just that.
By centralizing your financial insights, the right SaaS financial tech stack helps you make better and faster decisions. The top-line SaaS metrics provide a complete picture of your activity, setting you up for success.
Many SaaS software offer a comprehensive dashboard where you can find the following metrics:
Booking is the metric that indicates the value of contracts signed with your customers. It shows how much you can expect from your committed customers over a specific period of time.
Booking is important especially for finance teams, as it helps plan cash outflows and inflows.
It allows you to determine your SaaS potential revenue and define your revenue growth expectations accordingly. It is a good indicator of how efficient your current sales approach is.
You have different types of bookings, including renewal bookings, upgraded bookings, and new bookings - depending on where they come from.
Billings is the amount owed by the customers you have invoiced. You can calculate your billing over a month, a quarter, or a year.
Having high bookings and low billings should be a signal that you have a cash flow problem looming. It’s time to be proactive by:
Updating your payment terms,
Offering upfront payment discounts,
Setting up solutions to collect the invoices you’re due
MRR & ARR
These revenue metrics allow you to gain an effective overview of your SaaS income.
According to the GAAP rule, you can only recognize revenue when it is earned. This accrual accounting method enables SaaS businesses to track their Monthly Recurring Revenue, known as MRR.
The Monthly Recurring Revenue formula is quite simple: you sum up the revenue earned within a month. To predict your ARR (Annual Recurring Revenue), you multiply your MRR by 12.
This formula gets trickier when you have to account for setup fees, upgrades, downgrades, add-ons, consultation services, support fees, customization, and renewals every single month for every single user.
In order to make the process of revenue recognition easier, the FASB (Financial Accounting Standards Board) and the IFRS worked together to establish the ASC 606. These accounting standards make it easier for SaaS, as they give specific guidelines for subscription-based companies.
Having these metrics under your fingertips thanks to accurate SaaS accounting and real-time automation makes it easy to monitor your cash flow and overall business health. Easily accessible top-line metrics save you time and energy for analytical and strategic decision-making.
The Best Stack for SaaS Accounting
Building your SaaS finance tech stack will save you the time that is usually spent on repetitive tasks: billing, collecting and recognizing revenue, and even reducing overdue payments.
Choosing the Right Accounting Software for Your SaaS
To ensure that you choose the right accounting software for your saas business you should take the following criteria into consideration:
Choosing the right saas accounting software means choosing the right software for you - right now, and in the future.
QuickBooks and NetSuite are both leaders in their industry, but there are some important differences between them.
Whatever way you go, it is a business decision that needs to be taken in conjunction with your business team: sales, marketing, finance. Your software is here to make your processes more efficient and transparent, making real-time information available 24/7. Of course, there are more criteria to consider when choosing your accounting software.
Bear in mind that your accounting software itself is only one part of the puzzle. For your financial processes to run smoothly and efficiently, you need other elements in your finance tech stack:
A billing software: it will allow you to send invoices, but also record transactions, reconcile revenues - and much more.
A payment processor: they act as a bridge between you, your clients and your respective banks, making the transaction possible. Choosing the right payment processor is a decision with many layers to it - and you might need to use several, depending on the countries you operate in.
One thing to remember as a SaaS is that no one software will do everything for you. Selling SaaS is a complicated process with several elements to it. SaaS subscription management has specificities to it, and so needs specific tools to run efficiently.
Open Systems and Integrations Empower Your Financial Management.
A growing SaaS company requires the appropriate finance tech stack to successfully follow every day’s operations and grow. An open tech system incorporates accounting as well as financing tools to help you monitor all your business's financial activities.
Connecting your CRM, accounting, and billing tools together will help you improve accounts receivables management, automate repetitive tasks, and access real-time financial reporting.
Accounting Automation Enhances Your Productivity.
Financial automation reduces human error and helps CFOs dedicate more time to strategic work. It will increase your team’s efficiency.
Instead of tracking the latest up-to-date data, your financial team will be able to dedicate more time to budgeting work and strategic planning.
Moreover, automation promotes collaboration within your company, since different teams need to have access to the same data at the same time. A robust finance tech stack improves internal communication and boosts your overall productivity.
The Best Solutions to Optimize Your Revenue Operations
Choosing the right tech stack to support your growth is one of the best strategic moves you can make for your Saas business as it will drive your revenue expansion.
Let’s start with your CRM: using a CRM like Salesforce ensures that your marketing and sales activities are thoroughly tracked, which gives you a clear picture of your ongoing business activities.
On Salesforce you can monitor your sales and marketing campaigns through customizable dashboards, lead sales, and conduct strategies based on data-driven analysis, and measurable marketing KPIs.
Add to this a subscription management software like Chargebee that helps you manage all your subscription lifecycle activities, from checkout to account reconciliation, add-ons, coupons, and downgrades/upgrades.
Chargebee doubles up as a billing tool that, integrated into your CRM, will help you manage revenue recognition.
As for accounting SaaS software, it will depend on the size of your business. NetSuite provides financial management and data analysis that are crucial for fast-growing businesses with 10 to 1,000 employees. If you’re a B2B SaaS scale-up, Netsuite is a solid choice to go with: it simplifies your processes - from recording transactions to closing books - and expands as you grow.
On top of that, an A/R tool will help you reduce late payments. Obviously, we're fans of Upflow, our in-house software. It's already worked wonders for our customers and lets you schedule reminders and helpful workflows while boosting communication with your customers.
Upflow will also enable you to follow invoices per user and follow payments in real-time. Having the ability to track DSO and analyze your bills collection improvement is another reason our users love it.
These 3 tools integrate perfectly with each other as they all have great integration capabilities. Each software has its own features and specificities, and together they make your SaaS accounting easier.
Open ecosystems are really key when it comes to a finance stack that will serve you now but also support your growth.
As you can see, there are a lot of components in a finance tech stack. Choosing the right tools that not only perform well on their own but also integrate with each other is key. But it’s worth the effort, as the right finance stack will drive the revenue expansion of your B2B Scale-Up.