I run Kruze Consulting, one of the top accounting firms that works exclusively with startups. About ~30% of our accounting customer base are SaaS companies, and so we’ve built a specific program to accommodate the needs of these types of startups. Not all accounting firms understand technology, and SaaS opens up a whole host of complications. Here are some of the key items to look for in an accounting partner for your SaaS startup:
Already has SaaS clients. You don’t really want to pay your accountant to learn on the job. There are a lot of nuances to getting a SaaS company’s books and taxes done correctly - ASC 985-605: Software Revenue Recognition is just the tip of the iceberg. You don’t want to pay hour CPA hourly to figure out how to do something. That leads me to the next point:
Fixed fee pricing. Choose a CPA who understands how important it is to have visibility into your company’s cash burn. Fixed fee pricing helps provide clarity to your costs. You can see Kruze’s monthly bookkeeping pricing here, and you can estimate your startup’s tax return costs here.
Gets SaaS terminology. This is something to figure out before picking an accounting partner: if the accounting firm knows the lexicon, then you’ll know that worked with SaaS businesses before. Accounting and finance for SaaS companies is wildly different than that for a restaurant, and working with an expert in your industry will make all the difference. And if your venture capitalist asks you for a ARR growth report, you better not have to explain ARR to your CPA!
Has a SaaS Chart of Accounts. Revenue should clearly be defined as recurring v. one-off, and if you are lucky enough to get customer prepayments, the chart of accounts should have a corresponding Unearned Revenue or Deferred Revenue (Current Liability) account listed on the Balance Sheet. “COGS” has to include your direct costs associated with delivering the service - usually this is a hosting cost. But, your accountant needs to be savvy enough to ask you if some of your server costs are R&D or product development expenses. Don’t over encumber your Gross Profit with R&D expenses! CAC, LTV, and Churn should be addressed in the financial model. Our SaaS Chart of Accounts has evolved as our top clients have grown, raised hundreds of millions in venture funding and raised even more! We use this SaaS Chart of Accounts with our new clients, so they are set up for success.
Have multiple levels of review. The ideal accounting & finance dept. has three levels: Staff Accountant, Controller, then CFO. Multiple levels of review ensure accuracy, because no one is perfect. I even have my own work cross checked.
Uses best in class software. Kruze Consulting is a leader in cloud accounting software because it saves our clients time and money. Choose a partner who knows how to use automation to reduce your workload - it’s not easy being a startup founder, and you don’t want to spend time dealing with things like running payroll or processing expense reports! Kruze has also developed in house automation through our team of developers, and this automation helps us offer recurring bookkeeping (and annual tax returns) at affordable prices.
Lots of successful exits. Large public SaaS companies regularly acquire startups. But surviving M&A due diligence is challenging, and if your books are not in order you can blow up your exit. Look for a top startup accounting firm that has regularly helped clients get acquired, because going through public company M&A due diligence is a skill - one that can dramatically increase your odds of a huge outcome for your business.
Understands the VC process. Raising funding is just part of the SaaS game, and you as a founder need to work with teams who regularly help their clients raise capital. From knowing what VCs want to see in projections to quickly turning around GAAP financials, work with a startup accounting firm that de-risks your next round.
A good working relationship. Even within the specialized world of Startup CFOs and accounting firms, you have a lot of choices. It’s OK to shop around. Expertise, resumes, and technical capability may be similar, so find someone that you feel comfortable with.
Has fun! Sure, this is a little silly, but founding and growing a company is hard. Choose to work with someone who gets that, and is there to help you through the good times and the tough ones.