SaaS Accounting 101

Why does good accounting matter for SaaS companies?

SaaS has been one of the hottest business models for the past decade, if not more. But accounting for SaaS is anything but simple.

From revenue recognition to understanding R&D vs customer service costs, SaaS business founders rely on tons of metrics to run their business. And VCs look for specialized SaaS ratios and calculations, like LTV to CAC, magic numbers and more.

Here are some of the reasons an high-growth SaaS business needs great accounting:

Small changes in churn, ARPU or other user metrics can drive massive swings in cash flow
Executives make better decisions when they use credible data
Understanding and projecting working capital, especially as it relates to deferred revenue, can help a company reduce its need on outside venture capital - if managed well
Sales taxes and state and federal taxes require good accounting
Revenue recognition is always a pain, but is also critically important - especially when selling the business to a large player or when raising millions of venture capital financing.

When does a SaaS company need to start worrying about doing bookkeeping?

If you haven’t been keeping track of your books by the time you raise your first outside money, you need to get your books in order.

We generally recommend that businesses move away from spreadsheets and into an accounting software as soon as possible.

Day one you start the company and start a bank account.
Connect that bank account to QuickBooks.
Start getting the bank feed going into QuickBooks and actually characterize the transactions inside of QuickBooks.

B2B SaaS vs B2C SaaS

SaaS companies can serve enterprises, consumers or anything in between. The size and type of contractual relationship with a client makes enterprise focused Software as a Service companies completely different from consumer apps sold on a recurring revenue stream through an app store. While the LTV to CAC relationship and other metrics matter for both, enterprise-focused companies have to deal with other metrics like book to bill. And consumer focused businesses should be monitoring churn cohorts and other user data very closely.

The good news is that Kruze’s team is familiar with all flavors of Software as Service business models, and we can support your financials and metrics whether you sell to Fortune 500’s or to consumers.

What financial statements do SaaS companies need?

Software as Service companies need to regularly produce three major financial statements. These are the Income Statement, Cash Flow Statement and Balance Sheet. Additionally, SaaS companies have other metrics that may or may not be on the actual financial statements - like bookings, ARR and more. It makes sense to work with an expert bookkeeper or controller who understands how these numbers relate to your business’ GAAP financials.

The income statement shows the company’s:

Revenue
Cost of Goods Sold (COGS or COS)
Gross Profit (Revenue - COGS)
Operating Expenses
Net Profit

The cash flow statement shows the company’s:

Changes in Inventory
Other working capital changes (like changes in payables)
Operating income
Investments in equipment
Capital raises and loan paydowns
Net cash flow / change in cash position

The balance sheet shows:

Assets
- Cash
- Inventory
- Accounts Receivable
- Other assets like equipment, buildings, etc.
Liabilities
- Accounts Payable
- Sales Tax
- Credit Card liabilities
- Loans
Equity
- Invested equity
- Retained earnings

Setting up a chart of accounts for a SaaS business

Every business needs a chart of accounts - we’ve got a sample chart of accounts for a SaaS company here for you to use if you’d like. Keep in mind that every business is unique - so you may want to modify it to fit your specific business.

If you don’t know what a chart of accounts is you should probably hire a good bookkeeper, but what it does is translates your general ledger entries into your income statement, balance sheet, etc. It’s like the map of where the specific expenses and other accounting items flow to in your financial statements.

5 things that make SaaS accounting difficult

Revenue recognition
Sales tax
Understanding gross profit - parsing server and R&D costs between serving customers and R&D, correctly positioning customer service, etc.
Customer refunds or upsells
Deferred revenue
LTV to CAC and other SaaS-specific metrics

Revenue Recognition and Deferred Revenue - the Hardest Part of SaaS Accounting

Our Software as a Service companies tend to carefully track their MRR and ARR. However, along with deferred revenue, MRR and ARR calculation and revenue recognition is the most difficult part of providing SaaS accounting services.

ARR, MRR and recognized revenue are difficult for many SaaS companies. While accounting systems can produce automated revenue numbers, someone needs to review them. And if there isn’t a real accounting doing that, the work falls to the SaaS company’s CEO.

Deferred revenue is even more complicated, since it’s not as easy of a financial figure to understand. At its most basic level, if your clients are paying ahead of time for services, your company will put a deferred revenue liability onto the balance sheet. And as you deliver this service and recognized revenue, the deferred revenue liability decreases.

The price of incorrectly accounting for revenue and deferred revenue can be high. During due diligence, experienced SaaS VCs will request your financial statements, and they expect the numbers to match (although, reporting a bookings ARR number is 100% legitimate and won’t be reflected in your GAAP financial statements). Public technology companies spend even more time doing due diligence of SaaS revenue recognition, so if you are going to be acquired these numbers matter.

Invest in a good partner to help your business get these right!

How Kruze is Like a SaaS provider for Accounting

Through our work with hundreds of funded startups, we realized that VC backed businesses like to purchase all their services like a SaaS business. That's why we price our bookkeeping services on a set, recurring monthly level - our clients can know what their basic accounting will cost each and every month. This helps them manage their cashflow, plus it gives our founders less mental overhead when they think about their upcoming expenses.

What to look for in a good SaaS accountant

Getting the books right for a SaaS business is surprisingly challenging. The biggest issue we see with clients that come to Kruze from another bookkeeper is serious mistakes with revenue recognition and deferred revenue - especially from “bot” bookkeepers and from non-SaaS accountants. Because of the way revenue transactions recur in a subscription business, small errors can become big problems if not caught early - including having to restate the balance sheet and income statement.

At Kruze, we combine automated software with experienced controllers and CFOs. We can work with both enterprise and SMB/consumer focused companies with recurring revenue streams. Our custom-built automated software works directly with QuickBooks Online, saving you money through the labor-savings, while putting your financials into an industry standard, 3rd party software so you can take it to any provider or use it with any potential acquirer or auditor.

The best SaaS accountants understand the complications of revenue recognition, GAAP expense recognition, enterprise vs consumer software as a service billing systems and more. Plus, accountants specialized in the recurring business model have the ability to help founders think through the cash implications of different billing and pricing plans. Our accounting team has over 11 years, on average, experience, and collectively our team has experience with everything from hardware as a service to recurring app-revenue models to enterprise SaaS contract revenue recognition.

We believe that it's our team's job to help save our CEOs time and take care of the basic bookkeeping tasks that other services dump onto their clients. Our SaaS clients have raised billions in venture capital, and former clients have been acquired by massive public companies like Cisco, Apple and others - so we know how to prepare you for due diligence. If you're ready to work with the top SaaS accountants in Silicon Valley (and beyond), reach out to us.

Ready to work with a SaaS accounting expert?

About Us

A CPA Firm Specialized in Startup Accounting & Finance

Startups are our niche, and our passion. Our clients have raised over $5.5 billion in venture capital financing. We are one of only a few outsourced accounting firms that specialize in funded early-stage companies - we only offer financial and tax services to fast growing startups in the Seed, Series A, Series B and Series C stages.

The Right Accounting Partner for Your Startup’s Next Round

We know how to de-risk your startup’s next venture capital round. Our team makes sure you are ready to fly through your next VC’s accounting, HR and tax due diligence. And when you use us as your bookkeeper, we set up and keep up-to-date a due diligence folder so you can get that next round of fundraising.

A Leader in Cloud Accounting Software

Our practice is built on best of breed cloud accounting software like QuickBooks, Xero, Netsuite, Gusto, Zenefits, Expensify, Avalara, Brex iand Bill.com. Technology makes us more efficient, saving our clients money and letting us offer higher value services like FP&A modeling, 409A valuation and venture debt consulting. Startups deserve to work with CPAs using modern software.

Trusted by Top Venture Investors

Top angel investors and VCs refer Kruze because they trust us to give the right advice. Our clients are portfolio companies of top technology and Silicon Valley investors, including Y-Combinator, Kleiner, Sequoia, Khsola, Launch, Techstars and more. With us, your books and taxes are in order when it’s time to raise another round of venture financing.

What types of startups does Kruze Consulting usually work with?

Kruze Consulting works with a variety of funded Delaware C-Corps, but the majority of our companies have secured Seed, Series A, Series B and Series C. We look to partner with our clients, going beyond the typical outsourced accounting relationship and seeking to provide a higher level advisory role. We feel honored to be a part of making the world a better place, even if it’s one debit and credit at a time.

Accounting, Finance, Taxes, & Payroll all in one solution

Startup CFO services, startup accounting and bookkeeping services, startup annual taxes, expense reports, payroll, benefits: we've got you covered. Our software provides custom tailored dashboards that can be provided weekly or monthly, depending on your preference and plan. Founders are often so busy building their company that they don’t have time to take care of their finances. Traditionally, these companies have had to work with a basket of people to get their work done, including bookkeepers, accountants, AP clerks, CFOs, consultants, and tax accountants. At Kruze Consulting, our founders have one point person, saving time and money.

Client testimonials

We're huge fans of Vanessa and the folks at Kruze Consulting. They set up our books, finances, and other operations, and are constantly organized and on top of things. As a startup, you have to focus on your product and customers, and Kruze takes care of everything else (which is a massive sigh of relief). I highly highly highly recommend working with Vanessa and her team.

Vivek Sodera

Co-Founder @ Superhuman

As a startup, moving quickly is a top priority for us and we just needed to get our tax return done. After we uploaded our docs, we got our tax return in 3 days! E-filing was confirmed by Day 4. Super responsive and helpful!

Casey McKerchie

VP, Operations of Calm.com

Avochato has been growing rapidly in the past year – in fact, too quickly for us to keep up with books, taxes, and budgeting for growth. Partnering with Kruze Consulting has been fantastic to manage, track, and analyze our finances while we continue focusing on building our customer base. Kruze’s team knows what startups need.

Alex De Simone

CEO @ Avochato

Everybody, go to Kruze Consulting. They do a great job. I personally can tell you, they've done a great job for our companies, including Calm.com. I'm sure they’ll do a great job for you.

Jason Calacanis

Angel investor

I had a great experience working with Kruze Consulting when we raised Series A. They know what VCs need to see, and how to present a startup’s books and finances. If you are going to raise venture capital, you need experts like Kruze.

Chris Mansi

CEO @ Viz.ai

Kruze Consulting is the perfect Accounting, Finance and Tax partner for Los Angeles Startups. Kruze delivers exceptional monthly reporting and financial projections. When we need help with benefits or payroll, Kruze solves our problems. Kruze does our taxes for a fraction of what previous accountants have charged. Thank you Kruze for being a great partner.

Brett O'Brien

CEO @ FLYR

Being a repeat tech entrepreneur, I know how challenging it is to find the ideal CFO - not only is it often expensive to find the right one, but CFOs who combine expertise with scrappiness, market vision and perspective with detail orientation and 'roll up your sleeves' execution is near impossible for an early stage company. So I've been thrilled to work with Kruze Consulting, who not only provide all the ideal characteristics of a top-tier tech CFO, but also live and breathe entrepreneurship themselves. I've known Scott and Vanessa for many years and their deep personal integrity and strong reputation in the industry and made it an easy decision to work with them again.

Tina Fitch

CEO @ HobNob

NIH, NSF, and SBIR grant compliance can add a lot of overhead for a start-up. The Kruze team makes it easy, so we can spend our time growing the business instead of shoveling paperwork.

Charlie Silver

CEO @ Mission Bio

As a startup, it’s incredibly important to keep track of where our money is coming from and where it’s being spent. Kruze Consulting really helps keep our books and taxes in order so that we can focus on the core business. Extremely responsive and very professional, the accountants at Kruze Consulting are a pleasure to work with. We’d highly recommend their services.

Peter Lai

CEO @ Emburse

Prior to Kruze, as a remote-first team, we were weighed down by a lot of the bureaucracy involved with having a distributed workforce. Kruze has supported us above and beyond basic accounting needs by ensuring we have everything we need to expand and support our team wherever they may be located

Zack Fisch

Pequity's Head of Operations & Legal

Staff Accountant	$85
Senior Staff Accountant	$110
Controller	$140
Junior Financial Modeling	$175
Financial Modeling	$400
Venture Debt	$400
CFO	$350
Tax Advisory	$395

Seed	$2,000
Seed A	$2,500
Seed B	$3,000
Seed C	$3,500