SaaS Bookkeeping: Financial Clarity for Growth-Driven Startups

Complex billing cycles, subscription-based models and a need for accurate revenue recognition are all key challenges with bookkeeping for an SaaS startup. However, given the unique characteristics of SaaS startups, proper bookkeeping is essential to ensure accurate financial reporting to empower informed decision-making. Proper bookkeeping can also check the right compliance boxes, ensuring that GAAP accounting standards and any tax regulations are properly met.

If your startup doesn’t have the right financial expertise in-house, you might consider partnering with a fractional CFO or financial expert to save money and ensure your SaaS startup’s finances are properly managed. That’s where Graphite Financial can help. As financial experts who’ve helped hundreds of startups, many in the SaaS market, we’re well-positioned to serve as your specialized partner for bookkeeping services.

Why SaaS Bookkeeping Requires a Specialized Approach

Standard bookkeeping won’t cut it for an SaaS startup based on the unique subscription-based model they operate on, and the complexity involved in tracking and reporting revenue.

There are also specific compliance requirements SaaS startups have to meet, such as the Accounting Standards Codification 606, which are rules that govern how SaaS startups recognize revenue from contracts.

Some of the most important metrics SaaS bookkeepers should be regularly tracking include churn, customer retention, CAC, MRR and LTV. Partnering with providers that specialize in SaaS accounting services can help ensure these metrics are accurately tracked and aligned with compliance standards.

Essential SaaS Bookkeeping Metrics You Must Track

Here’s a closer look at some of the key metrics SaaS bookkeepers should be tracking:

• Churn: Turn is essentially customer turnover, measured in the percentage of customers that cancel their subscriptions over a certain period.
• Customer retention: Customer retention is a metric that measures the ability of your startup to retain customers.
• CAC: Customer acquisition cost is the total amount of money that a startup spends to acquire a new customer.
• MRR: Monthly recurring revenue is the amount of income your startup can expect to receive on a month-to-month basis.
• LTV: Customer lifetime value is the total revenue that your startup can expect from a customer throughout their entire business relationship with you.

These metrics help empower startup leaders to make smarter decisions based on data, underscoring the importance of proper bookkeeping to ensure such data is calculated accurately and regularly.

SaaS Revenue Recognition: The Cornerstone of Accurate Bookkeeping

One of the biggest challenges for SaaS startups is properly recognizing revenue. SaaS startups must comply with the ASC 606 revenue recognition standard, which requires startups to recognize revenue in five steps:

• Identify the contract
• Identify the performance obligations
• Determine the transaction price
• Allocate the transaction process
• Recognize the revenue when obligations are met

The two main types of accrual accounting are cash-basis and accrual-basis. Cash-basis accounting records income when cash is received, while accrual accounting records income when it’s earned (even if it hasn’t been paid). Accrual accounting tends to be the preferred method for SaaS startups because it’s easier to track in alignment with the subscription-based business model.

Choosing the Right Bookkeeping Software for Your SaaS Startup

From QuickBooks to Xero, FreshBooks to NetSuite, many solutions can help streamline bookkeeping for your SaaS startup. Some of the key features to look for when making decisions on your software programs include ease of use, subscription management features and the ability to integrate with other SaaS tools your startup is already using. The right SaaS accounting software can simplify these processes and help ensure financial data stays organized and up to date.

Key Software Integrations for SaaS Bookkeeping

Ideally, the solution you select for your SaaS bookkeeping should be able to easily integrate with the other programs your startup is already using. Some of the integrations you should be on the lookout for include:

• Expense management
• CRM integration for tracking metrics
• Integration with billing systems

Common SaaS Bookkeeping Challenges and How to Overcome Them

A good bookkeeping partner can also help your startup overcome some of the common challenges that SaaS startups face. These include deferred revenue management, handling upgrades and downgrades, and reconciling multiple payment processors.

How do you overcome such challenges? First, it’s important to understand revenue recognition principles and to track deferred revenue properly. Strong financial management plays a key role in ensuring these principles are applied consistently and accurately.

Handling upgrades and downgrades is all about providing a seamless and transparent experience for your customers. Additionally, ensure that you’re offering flexible options to your customers.

For reconciling multiple payment processors, it’s vital to compare records from different sources to ensure accuracy and better track any discrepancies regularly.

Managing Subscription Changes in Your Bookkeeping System

Preparing for upgrades, downgrades and expansions is a key factor for any SaaS startup, especially considering the financial impact that subscription changes can present. Customers may move to higher-priced tiers, downgrade to lower-priced tiers, or add new products or services for a variety of reasons.

There are a variety of ways to account for such changes. One way is to ensure that you’re offering flexibly priced models, while putting effort into customer retention and expansion. Upselling and cross-selling are other strategies to help promote expansion.

Additionally, it’s important to track subscription changes and learn from your data to better uncover ways to retain more customers — and at higher-priced plans.

Setting Up a SaaS-Optimized Chart of Accounts

A chart of accounts is a list of all financial transactions to help categorize and track all financial data and provide a structure for monitoring income, expenses and the overall financial health of your SaaS startup. For an SaaS startup, consider categorizing revenue by your product or service lines, and be sure to include metrics like R&D, S&M, G&A and more.

How Proper SaaS Bookkeeping Supports Fundraising Efforts

Investors are only likely to back your startup if they’re able to gauge its strong financial health or see the potential in it. Good bookkeeping can support both.

Clean books and accurate metrics can help build the case for your SaaS startup and build investor confidence. Investors want to see data like billings, bookings and revenue to properly assess your startup’s financial health and operational efficiency. They also want to see cash flow and potential for scalability.

Good bookkeeping can help predict revenue and create more accurate financial projections.

How Graphite Streamlines SaaS Bookkeeping for Growth-Focused Companies

If your startup is looking for high-level bookkeeping service and is ready to scale, consider working with an expert like Graphite. Graphite takes a specialized, operationally-focused approach to SaaS bookkeeping. We’re always “on” so your books are accurate and ready to help facilitate growth. As expert bookkeepers who specialize in working with SaaS startups, Graphite’s goal is to create long-term partnerships to serve as an extension of your startup’s financial operations.

Take Your SaaS Finances to the Next Level with Expert Bookkeeping Support

Ready to take your SaaS startup to the next level and scale efficiently and effectively? Contact Graphite today to learn more about our professional SaaS bookkeeping and accounting services and to schedule a consultation.

FAQs

How does bookkeeping for SaaS differ from traditional business bookkeeping?

Complex billing cycles, subscription-based models and a need for accurate revenue recognition are all key challenges with bookkeeping for an SaaS startup that separates it from traditional bookkeeping.

What financial metrics are most important to track for a SaaS startup?

Some of the most important financial metrics for an SaaS startup are churn, customer retention, MRR, ARR, CAC and LTV.

How should we handle revenue recognition for annual subscriptions paid upfront?

Consider recognizing the revenue gradually throughout the subscription period to align with any performance obligations.

What bookkeeping software works best for SaaS companies?

Look for key features such as ease of use, subscription management features and the ability to integrate with other SaaS tools your startup is already using. QuickBooks, Xero, FreshBooks and NetSuite are some of the most popular programs.

How often should a SaaS company reconcile its accounts?

We suggest reconciling accounts at least quarterly. In some cases, it may make sense to reconcile more regularly.

How can proper bookkeeping help my SaaS company during fundraising?

Proper bookkeeping presents accurate financial data and can demonstrate financial health and growth potential for your SaaS startup, which investors want to see before making any decision.

What are the common bookkeeping mistakes SaaS startups make?

Common challenges include deferred revenue management, handling upgrades and downgrades, and reconciling multiple payment processors.

How does ASC 606 impact our SaaS bookkeeping processes?

SaaS startups have to meet SaaS Accounting Standards Codification 606, which sets rules that govern how SaaS startups recognize revenue from contracts.