SaaS Accounting: Tailored Solutions - Accounting for SaaS Companies
Software as a Service, or SaaS, solutions are becoming increasingly popular in industries of all kinds. They bridge the gap between old and new - enabling everyday users to take advantage of the tech tools they need without having to worry about purchasing, installing, or maintaining hardware and software on their own. There's an opportunity to franchise software for everyone and everything.
The SaaS market is now one of the fastest-growing in the world, expected to reach $819.23 billion in value by 2030. Its rapid upward trajectory means great things for aspiring entrepreneurs, albeit with some caveats.
Accounting is a major hurdle when it comes to launching a SaaS solution. Not only do you have to keep track of invoices, expenses, and other financial information for your own business, but also those of customers who are using your software. Set against the backdrop of everything else that goes into launching a successful SaaS product, the extra work and responsibility can be downright overwhelming.
The Unique Accounting Challenges of SaaS Companies
Accounting has never been easy, regardless of what sector you operate in. There's a long list of responsibilities and paperwork to manage, regulations to know about, and best practices to keep in mind. The reality isn't any easier for SaaS business owners, who often lack the background knowledge, time, and resources they need to stay on top of their books.
The SaaS market is also unique from others - it's characterized by high transaction volumes, recurring revenue streams, and frequently changing customer requirements. That means the average accounting tool won't do, and even manual processes can be time-consuming and error-prone.
Are Your SaaS Company Accounting Practices Focused on the Right Things?
With a unique business model comes the need for a unique perspective. SaaS vendors need to take a variety of special considerations into account when managing their finances.
Here are a few examples:
Deferred Revenue and Accrued Liabilities
Deferred revenue and accrued liabilities are two crucial aspects of accounting that all SaaS businesses should be aware of. Deferred revenue occurs when a customer pays for goods or services before they are delivered, while accrued liabilities occur when a SaaS company is obligated to pay an amount in the future but does not yet have the means necessary. Managing both is key to staying financially sound and avoiding any potential pitfalls.
Customer Churn and Lifetime Value
A business is nothing without its clients. That's especially true in the SaaS space, where customers' monthly payments are the lifeblood of a company's revenue stream.
But churn—the rate at which customers cancel their subscriptions or fail to renew them—can have a devastating effect if left unchecked. Good SaaS bookkeeping means tracking customer churn and measuring Lifetime Value (LTV), or the total value of a customer over their lifetime with your company.
Development Cost Capitalization
Developing software requires significant time and financial investment, which can be expensive for any SaaS business. That's why it's important to capitalize development costs correctly so that they are not immediately expensed but rather spread out over the life of the product. While revenue recognition for SaaS companies can be complex, it's important to get right from the very beginning.
From accounting SaaS software to SaaS solutions for graphic design, every digital product caters to a target market. The only problem is that the market can be wide-reaching, sometimes across jurisdictions with different tax rules. Fail to follow any and your lucrative SaaS income statement will take a hit in payables or collections.
Complying with Standards
SaaS GAAP accounting refers to the rules and regulations you must adhere to when producing financial statements for your software offering. Generally, this includes complying with generally accepted accounting principles (GAAP) such as separating business activities when accounting for SaaS costs, following the matching principle of revenue and expenses, and defining financial statements using standardized formats.
Why SaaS Companies Trust Wilkins and Co for Their Accounting Needs
With the importance of good bookkeeping being clear, no business can afford to have an inexperienced or underqualified provider by their side. Wilkins and Co is neither.
A leader in accounting for SaaS companies, our firm puts its extensive experience and knowledge to work for valued clients of all sizes. Whether you’re just starting out with your software offering or have been in business for years, we can help ensure your financial statements are accurate and compliant with all relevant regulations.