Over the last three years, start-ups have raised funding every 15 months. As your SaaS company grows in complexity and expectations, you reach a point where manual processes waste time away from analysis, and you struggle to collect and act on your growing range of financial and operating data. At this point, you need to build a FinOps Tech Stack that scales and informs the path to IPO.
At a minimum, a modern billing and accounting system for SaaS, Software, or Technology companies should automate and streamline core financial management functions such as Accounts Receivable, Accounts Payable, and the financial close. But you can hardly fuel your growth and need for accountability and transparency by simply automating the minimum. SaaS firms, in particular, have revenue recognition, subscription billing, and SaaS and GAAP investor reporting needs that require specialized functionality in their financial management systems.
As SaaS organizations continue to shift their customer relationships from transactional to longer-term subscriptions, they attract more customers, create more predictability in revenue, and achieve higher customer lifetime value. Subscriptions require new capabilities beyond traditional enterprise resource planning (ERP) that legacy order-based financial systems can’t support. Here are 4 reasons why your SaaS business needs a tech stack built for the subscription-based business model.
1. Deliver Revenue Recognition and SaaS/Subscription Billing
Fast-growing SaaS companies need to manage the customer across their lifetime. Understanding the complete revenue stream, across unbilled, billed, and paid; then the revenue recognition across that stream with deferred and recognized revenue, compliant with ASC 606, is critical. Also, handling different billing requirements across user- and/or usage-based subscription billing powers the revenue model. These requirements are best met through a financial system that provides complete contract management, efficient operational processing, timely reporting, and a comprehensive audit trail. These are the key capabilities to look for in a financial/accounting system designed to address revenue recognition and subscription management.
- Establish Contract-based subscription billing
- Integrate systems for a quote to cash
- Build end-to-end revenue management
- Create forward-looking forecasting across revenue streams
- Native general ledger
2. Crush Board Meetings and Executive Staff Meetings
A modern accounting system provides in-depth, real-time insight into the organization, allowing you to capitalize on new opportunities or quickly recognize the need for corrective action. You benefit from having a thorough picture of the financial performance of your organization, such as cash-flow, budget vs actuals, and SaaS metrics such as churn, CMRR, and NDR. To gain greater financial and operational insight, your system should deliver:
- Multiple operating dimensions for all transactions
- reports and dashboards that automatically combine operating dimensions with financial data so you can analyze results for each operating unit, location, project, customer, and more.
- Self-service reports and custom dashboards to reduce ad-hoc stakeholder reporting while delivering real-time updates and drill-down capabilities for visibility and insight into the numbers.
3. Empower the Finance Team with Automated and Flexible Financial Processes
A modern general ledger is more than a standard chart of accounts. It lets you manage, analyze, and present your financial information the way you want, without adding complexity to your chart of accounts or using external reporting tools.
Your modern accounting system should adapt to your optimal business structure and workflows rather than limit your business flexibility or force you to reimplement software or rewrite custom code. As new technology is released, from EFTs to AI, you want a system that lets you add or subtract modules, providing you with the agility to scale growth in a manner that is best for your business. Your system should easily let you manage:
- Detailed consolidating entries.
- Multiple levels in your organization hierarchy and various ownership structures.
- Different workflows, charts of accounts, period definitions, and lists across your multiple entities.
4. Have the Platform for IPO or M&A
A modern accounting system is cloud-based, helping reduce IT costs and technology risks while improving productivity. It provides the foundation and scalable framework to help your company go from seed to IPO and beyond. It is future-proofed with evolving capabilities that address the latest tax or compliance laws as well as user demands from the next generation of accountants.
Using the cloud also gives you the flexibility to choose best-in-class solutions that focus on ease of integration with other leading software solutions to meet your needs in each focus area versus using a suite, which limits choices and may involve expensive, drawn-out implementations. A best-in-class cloud accounting system delivers:
- A high level of helpful service that extends from a well-executed implementation for a quick ROI, to a friendly user interface and the feeling of working with a partner vested in your success
- Reduction in your technology risk with enterprise-class security, backup, disaster recovery, and performance monitoring
- Productivity results from any time, anywhere access on any device and operating system.
- Convenient “point-and-click” integrations with commonly used applications that you can do yourself
This article was originally published on SageIntacct, and republished with permission.