Bookkeeping For SaaS Companies - Measure For SaaS Revenue

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Bookkeeping For SaaS Companies
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Measure For SaaS Revenue

• Companies focused on a SaaS model have an
  absolute need for a proper accounting system even
  from the start of their operations.
• These businesses tend to use a subscription-based
  model which differs from that of a traditional
  business.
• All charges that are billable to clients are set
  up into subscription fees that are paid in a
  specific set of time which is stipulated in
  contracts.

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• Bookkeeping for SaaS Companies is invaluable in
  the process of recognizing the generated revenue
  in a given time-frame.
• Recording the transactions relating to
  operations, finances, and even investments give
  the business a clear view over the financial
  health of their organization.
• With those in mind, Bookkeeping Services can be a
  great choice for SaaS Companies who need to
  commit their workforce to the distribution of
  their products and services.

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The Process of Revenue Recognition for SaaS
Companies

• In the case of SaaS companies, they field a
  business plan wherein customers pay upfront in
  either monthly or annual contracts. Within this
  payment period, clients can make use of a
  particular service that the SaaS offers.
• When a SaaS company gains a new client, the
  profit gained from it is still not categorized as
  revenue as its only recognized at the end of the
  contract. Before the end of the contract, it is
  known as a liability.

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• Now, this comes with its own complications when
  it comes to revenue recognition as theres the
  chance of clients that might terminate their
  contracts while still in the payment period.
• There is also the aspect of deferred payment
  which is a value that needs to be recognized as
  an advance payment whenever an invoice is
  created.
• This lasts for the entirety of the service period
  and can impact income statements in a grand way.

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Guidelines for Revenue Recognition

• There is a set of guidelines that are set in
  place for the purposes of revenue recognition,
  named the Guiding Principles of Revenue
  Recognition.
• Also known as ASC 606, it covers various
  contractual situations which involve the sale of
  goods and services.
• There are 5 main provisions stipulated in the
  document.

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Identify the contract(s) with a customer

• This involves creating the contract which
  stipulates a set of enforceable rights and
  obligations to be met all throughout the contract
  period.
• It is deemed valid if it has the approval and
  commitment of both parties, as well as the
  identification of both rights and payment terms.
• The contract is also valid if it contains
  commercial substance and if there is a specified
  exchange of goods and services that are
  transferred to the client.

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Identify the Performance Obligations In The
Contract

• Firstly, what is a performance obligation?
• This is the promise made in order to distribute a
  product or service to a client.
• These performance obligations must be distinct by
  being a benefit to the client on its own or with
  the help of resources available to the client.

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Set The Transaction Price

• This is the amount of payment which the business
  can expect in return for providing services to
  the client.
• SaaS business should take into deep consideration
  whether or not this transaction price is variable
  with the expected value in mind.
• They should also look into Noncash consideration
  promised by the client, estimating the value of
  such and put that into their estimations.

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Allocate The Transaction Price To The Performance
Obligations In The Contract

• The transaction price set on the contract should
  be allocated to each performance obligation with
  an amount that reflects the payment expected by
  the SaaS Business.
• This involves finding the standalone selling
  price of each distinct service and product
  offered in a performance obligation.

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Recognize Revenue When (or As) the Entity
Satisfies A Performance Obligation

• For each of the performance obligations satisfied
  by the business if the client receives the
  necessary benefits given by the product within
  the contracts timeframe.
• Not only that, the client must also have an asset
  either created or enhanced by the businesses
  product.
• With that in mind, the SaaS service provider then
  has an enforceable right to payment.

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The Importance of Bookkeeping for SaaS Companies

• Within the realm of Bookkeeping, revenue is seen
  as credits as they increase either owners or
  stockholders equity of a business.
• Owners equity is stated within a balance sheet
  and represents the investment made by the owner
  subtracted from withdrawals made and with either
  net income or loss added in.

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VISIT

• https//www.freecashflow.io/