Even as CEO and Founder, your accounting system is probably not top of mind for you on a daily basis. Growth is on your mind, and you don’t think much about accounting until there’s a problem.
Did you know that thinking about your accounting now will save you a lot of pain in the future? It will also elevate your chances of becoming a unicorn company. When I work with our clients, I use the analogy of an asteroid hurtling toward Earth. You would want to know about it when it’s near Pluto, not when it has just passed Mars.
This ‘asteroid scenario’ might look like not being able to find the data you need for investors or needing to pay a lot of money to clean up messes to get your finances in order. While it may not seem mission critical right now, creating a solid financial operations core from the beginning can help you avoid small and large catastrophes—as well as a lot of unplanned expenses.
Simply put, you can’t put your accounting and finance infrastructure on the back burner. You need to feel confident about your financial statements and make sure you can show value to current and prospective investors. Here are our ‘Dos and Don’ts’ for SaaS Startup Accounting.
Tip #1: Do Know What You Need to Know
Investors expect to see a certain set of metrics when they consider investing in you. There are the basic business metrics and then there are SaaS specific metrics. Annual Recurring Revenue (ARR), your Customer Acquisition Cost (CAC) and Net Dollar Retention should be regularly monitored internally and are going to be hot topics with investors.
In addition to those you’ll want to watch your pipeline metrics and cash projections, so you are informed on your runway. These metrics should be looked at regularly and utilized to make informed, confident decisions.
Tip #2: Don’t Spend Money on a Fancy Accounting System
Many startups ask us if it’s a good idea to use QuickBooks in the beginning. The truth is, QuickBooks works fine, even up to $100 million in ARR. Yes, you read that correctly.
One client we worked with ran a company with $80 million in ARR on QuickBooks easily. It’s not complicated if you know the path to take. Most CEOs and founders don’t know how to set up an accounting system, even something as simple as QuickBooks, and that gets them in trouble. A recent SaaS startup client was a year and a half old when it reached $1 million in ARR with just 10 clients. Their Average Selling Price (ASP) was high, so they earned between $50,000 and $100,000 per client. While this sounds like a simple accounting situation, their accounting setup was not correct. To get the right numbers, SaaS Gurus needed to completely clean up their books, change their account structures, and revise their reporting structure, including the data cleanup. They remained on QuickBooks and to this day producing the right reports is as simple as pushing a button.
Tip #3: Do Make Sure You Can Easily Produce your SaaS Metrics
You can save money on QuickBooks but don’t skimp on automation. You can’t recover the opportunity cost of having leadership spend hours getting the key metrics they need or being left empty handed without the data at all. You’ll benefit from investing in a system to help you streamline financial operations, bringing all the data together you need to easily access your core SaaS metrics.
We often recommend Maxio (formerly SaaS Optics), a platform that automates subscription management, revenue and expense recognition, SaaS metrics, and ASC 606 compliance. Your internal systems, including QuickBooks paired with Maxio, will make it easy to get your recognized and deferred revenue numbers, your CAC and many other metrics without a lot of manual data entry. These systems will help you determine your cost structures to benchmark against others in the industry or any benchmark data to see if your spending is appropriate for your size. Ultimately, Maxio ensures you can create the metrics you need to survive and grow.
Tip #4: Don’t Create Orphan Data
Most SaaS metrics are developed from data that comes from multiple parts of your organization. For example, to get CAC, you need to incorporate marketing and sales costs. Integrating the financial core system with sales and HR systems makes sure none of your data is left on the table.
With modern financial operations systems, integration is often easy and saves you from dreaded manual data entry. SaaS Gurus integrated Recurly into Maxio for one of our clients for the front-end and processor systems data including B2C transactions and self-serve transactions, like credit cards. All B2B transactions were fed through Salesforce’s CRM and connected directly to Maxio and QuickBooks.
Tip #5: Do Get Help Starting Off Right
Getting started right doesn’t mean investing in the “best” systems. Instead, it’s about investing in the right systems at the right time. A first-time CFO could have extensive, impressive experience, but they may not understand how to strategically implement technology that gets you the SaaS metrics you need to grow without a lot of extra fluff and cost.
Start with identifying what metrics you need, integrating systems that get you the information easily and quickly. A fractional CFO from SaaS Gurus will help you implement:
- Key processes and systems to implement to avoid accounting ‘asteroids.’
- A proven accounting strategy for early and mid-stage startups
- Appropriate tech stacks that will support the organization as they grow.
- Time-saving systems integrations for under-resourced teams
- The metrics you need to get the valuation for that unicorn exit.
You don’t need an expensive CFO to make this happen. You simply need someone with experience to set you up correctly to get the right numbers in a seamless, automated fashion.
Contact us to hear how SaaS Gurus can help you uncover the SaaS Metrics you need to build your startup’s value.