A Comprehensive Guide to Mastering SaaS Accounting

Accountants can be so much more than back-office number crunchers bogged down by compliance structure and data aggregation. But traditional workflows have to change if you want to elevate your role in the business. Read through this guide to learn how to balance compliance with strategic SaaS accounting to add more value to your business. In other words, it is the revenue earned/recognized by a business for which the invoice is yet to be billed to the customer. Recognizing revenue before it’s earned will misinterpret your growth numbers, spiking up your growth potential.

The following products are highlighted because they offer SaaS-tailored tools and rank highly on the Accounting Software TrustMap—a dynamic grid that measures TRScore and the interest of B2B buyers. They are ordered according to the number of ratings and reviews they’ve earned on TrustRadius. Companies large and small have learned the hard way that Excel won’t cut it for their accounting needs. Case in point, Chase’s $2 billion loss due in large part to errors in manual Excel spreadsheets. At any moment, executives or team members may own public or private stock in any of the third party companies we mention. We recommend using an existing financial model template as a base instead of starting from scratch.

What to look for in a good SaaS accountant

Revenue is the lifeblood of SaaS businesses, but the accounting is anything but simple. Later on in this article on saas accounting we’ll discuss what goes into calculating ARR, but here we’ll discuss how revenue is recognized, and the different flavors of revenue that founders and VCs like to track. The critical decision for high-growth SaaS companies is when to move from accounting software like QuickBooks or Xero to a more robust one like NetSuite. Given the horror stories about NetSuite implementation and the fact that you can get quite far with QuickBooks, people often delay this upgrade. It’s not uncommon for some accounting teams to spend upwards of three weeks trying to close the books on the previous month. The mission-critical workflows, when handled in entirely manual ways, are massively time-consuming, which has two effects.

• SaaS companies operate on a subscription-based revenue model, which differs significantly from traditional sales models.
• Our timesaver package will provide you with a proactive partner who will handle your accounting needs while you focus on business.
• The biggest issue we see with clients that come to Kruze from another bookkeeper is serious mistakes with revenue recognition and deferred revenue – especially from “bot” bookkeepers and from non-SaaS accountants.
• Flux analysis in accounting is the process of comparing the latest month’s actuals to a previous period of time (month, quarter, year) to identify unusual fluctuations in revenue or expenses.
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• But you should definitely be doing custom financial reporting, at the very least, to create a clear view of both GAAP and SaaS financial metrics.
• A solution like Stripe unifies billing, payments, tax and revenue management within a single system that ensures compliance with ASC 606 and IFRS 15.

This method also accounts for expenses related to the acquisition of customers, like marketing and sales costs, which can be capitalized and amortized over the expected customer lifetime. Accrual Accounting for SaaS is a specialized form of the accrual accounting method tailored to the specific needs of SaaS businesses. This method applies the principles of accrual accounting but takes into account the unique aspects of a SaaS business model, such as deferred revenue and multi-period services.

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Quickbooks dominates the small business accounting space and offers at least some features for virtually every industry. As a result of this generalist nature, calling it a tool specifically for SaaS would be inaccurate. As an accounting solution, this offers a whole host of tools that appeal to everyone and is a Top Rated award winner in the accounting solutions field. SaaS companies, in particular, have accounting and budgeting needs that generic accounting software struggles to support. For instance, tracking Monthly Recurring Revenue is essential to many subscription-model SaaS companies. ASC 606 and IFRS 15 apply to SaaS companies and to companies in other industries with customer contracts revenue.

• Specifies criteria to meet when establishing a mutually agreed-upon contract to provide products or services to a customer.
• Companies earning revenue from contracts with customers must follow compliance measures when reporting revenue and filing taxes, to avoid penalties.
• Those workflows, together with some other high-level responsibilities, make up the broader SaaS accounting process.
• Accounting is a complex field with multiple specialties, disciplines, and industry applications, which means a quick search for “types of accounting” will leave you with anywhere from 4 to 15 different options.
• This method is typically used by businesses operating with smaller inventory levels or traditional pricing models, and it’s a simpler method than accrual accounting – and easier to use.

These platforms also offer ready-made solutions for ancillary business functions like marketing and support, among others. As you scale, you could be responsible for overseeing thousands of customer contracts at any given moment. This leads to the problem of properly storing and managing those contracts across time, in addition to other considerations we’ll discuss. Recurring revenue companies enter into a new ongoing subscription contract with every single customer. That’s why SaaS accounting should go to the professionals, not consume your evenings. Capitalization management is a crucial aspect of modern SaaS accounting, and LLMs play a significant role in streamlining this process.