Content
Most importantly, you’re required to ensure healthy cash reserves and cash flow. If what matters at the end of the day is growing cash flow, then why does it matter whether you put an expense above the line (in COGS) or below the line (in Opex)? It’s because gross margin percentage (GM%) is one of the most important metrics for SaaS company performance. Gross margin is used by investors and acquirers to gauge the quality of your revenue, and hence, valuation. A non-standard COGS definition can result in confusion and debate when trying to figure out just what a SaaS company is worth.
What is the role of the finance function?
One of the most important roles of the finance function is to ensure that all financial records are accurate and kept up to date. If managers use information which is not accurate and up to date, they may make poor decisions. The range of financial information can be vast, especially in larger businesses.
The definition isn’t predicated on when that cash is collected though, so collections can occur at the beginning of a contract or along any terms you set with your customer. Turns out they’re actually trying to make your life much easier by allowing you to make accurate predictions concerning your cash flow and clearing up the financial health of your business. Recognized revenue is when a booking becomes actual revenue by you delivering the product promised to your customer and goes into your accounts receivables. Sage Intacct supplies SaaS accounting teams with automated alerts whenever they approach a budget deviation–so you’ll never need to explain to your board why you exceeded your budget for the previous quarter. When you move to an SSOT in the cloud and automate your financial reporting, your SaaS accounting and budgeting problems will instantly be cut down to size.
B2B SaaS Scale-ups: The Right Finance Stack To Drive Your Revenue Expansion
Accrued Revenue is treated as an Account Receivable until the customer pays the bill. However, a high Accrued Revenue signifies that the business is not getting payments for its services and can be alarming from a cash-flow perspective. Recognizing revenue before it’s earned will misinterpret your growth numbers, spiking up your growth potential.
- The subscription model is gaining popularity as consumers increasingly rely on product flexibility.
- However, a SaaS business treats the sale of a license as a sale of a service provided over a period of time.
- The most important reason is that it obscures the uses of cash, and most early- to growth-stage B2B SaaS companies are, prudently, managing very tightly to cash flow.
- The positive impact of data integration on your financial processes can hardly be overstated.
- Join us as we dive headfirst into the world of SaaS finance, helping you to better understand the industry, how it operates, and strategies to help you succeed in your role….
- Let’s explore Bookings, Billings, and Revenue from an accounting perspective.
Familiarity with data, a willingness to accept change, and creativity are extremely important in modern finance functions. Consider the roles in your finance organization that benefit most from close collaboration and how you can place them in your team structure saas accounting to best enable that collaboration. Technology is redefining decision-making processes at the top of organizations. As a reflection of this, modern organizations have brought their CFOs and Chief Information Officers (CIOs) closer than ever before.
The Right Technology Begins with the Right Financial Leadership
SaaS CFOs must work closely with other departments within the organization. For example, the customer success team can offer insights into things like the status of customers’ subscriptions. The last of which is one of the most important SaaS CFO duties because fine-tuning sales efficiency is what’ll help you to create a repeatable, profitable, and scalable sales model. The SaaS CFO has an important role when it comes to approving, forecasting, and financial reporting the progress and success (or lack thereof) of specific growth strategies.
It is also important to know that this un-earned cash should not be invested in your future projects until it’s earned. This can be over a certain time period, for instance over a month or the whole year. There are a few top-line SaaS metrics that every SaaS business must track. In order to comply with the GAAP principles, a solid understanding of these key metrics is crucial.