Information over performance is critical for every company - but more so - for high-growth companies. When scaling fast, making quick and sound decisions based on real-time metrics is crucial.

We work with a lot of SaaS and Ecommerce companies and many of them are scaling fast. Whether they found product-market fit, are boot-strapped or whether they’ve raised money - everyone is looking to make decisions that will make their companies better.

The foundation for real-time metrics leans heavily on the bookkeeping and finance component of a company. Below are some key items to look out for when building out a bookkeeping process for a SaaS company.

SALES TAX VIA STRIPE AND OTHER PAYMENT GATEWAYS

Regardless of the payment gateway being used in the back-end during the ‘click > buy’ process by SaaS customers, there are some important items that need to be considered from a bookkeeping standpoint.

Stripe, PayPal, Square, Visa, Mastercard, Amex to name a few - will deposit funds into company bank accounts either in individual transactions (i.e. PayPal) or via batch payments (summing all orders in a given day and depositing them as one transaction in the upcoming days).

What’s critical is to capture the sales tax, if any, that were collected on sales. Without any corresponding invoices in the accounting system (which typically you don’t see for a high-volume SaaS company), there isn’t always an easy way to calculate the amount of sales tax collected.

When payment gateways deposit funds into a bank account, the deposits include sales tax (i.e. the sales tax is ‘baked in’), which will vary based on various provinces (Canada) or states (USA). It is really important that a process is created to ensure sales tax is carved out from deposits and tracked separately.

How do you do it?

Every client we work with is unique and although there are some common themes throughout, there are various ways to capture sales tax:

Stripe Reports - export Stripe transactional reports and filter by location (i.e. Province or State). You can then create a formula to back out the sales tax (i.e. 5% or 13% by province). You’ll then need a journal entry in the accounting system to back out sales tax if it was initially recorded as revenue or mapped to a clearing account.
- You can get fancier by importing Stripe transactions via CSV into an accounting system while keeping the location (i.e. province) as a column in the spreadsheet. This column can serve as a ‘reference’ when imported into the accounting system and a ‘rule’ or automation can be created around this reference (i.e. if ON shows up, record 13% HST -- which simply means -- if this transactions shows ON (i.e. Ontario), then back out 13% HST (Ontario sales tax rate) from this deposit).
Other Reports - You may be working with other payment gateways that can provide reports with sales tax information. You can then try to sort/filter through that information to find the information you need regarding sales tax.
Zapier - You can have Zapier create rows in a Google Sheet from Stripe charges and have the location (i.e. Province or State) nicely arranged for you.
Quaderno - Quaderno connects to many payment gateways and portals to aggregate sales taxes by region. It’s a highly useful tool that if set up correctly can save you lots of time. Quaderno can verify a buyer’s location, apply the correct tax rate and provide reports with breakdown by regions.

There are other ways too - if you have any great suggestions - drop them into the comment box below!

DEFERRED REVENUE

Almost everyone knows about the discount that can be had if a product was paid for in advance. A popular model is to provide a discount when 12 months of services are paid for in advance, as opposed to paying month-to-month.

What customers rarely think about is the financial reporting that has to take place on the company’s side.

The basics of accrual accounting is to record transactions based on when services are provided rather than when the transaction occurs. For example, if someone paid $1,200 on June 1 to use a product for 12 months - rather than recording the full $1,200 into revenue on June 1 - accrual accounting ensures that the $1,200 received is smoothed out over the period that revenue is earned (i.e. 12 months). So, in this example, the company would record $100 per month of revenue for 12 months rather than $1,200 in one month.

This is important because in SaaS companies, there is usually a mix between monthly and annual transactions and it’s critical to ensure that revenue is recorded accurately and in the correct period.

How do you do it?

Spreadsheets - track all revenue-generating annual transactions in a spreadsheet and then create formulas to ensure the transactions are divided by the specific number of months the product/service is provided. A row for each annual transaction is a good idea, broken down by month, with a sum at the bottom.
- Creating a repeating journal entry that you can edit monthly to capture the correct monthly revenue in your accounting system can further automate the process.
Flowrev - You can connect your accounting system (Xero or QBO) to the Flowrev app and then map accounts and create schedules so that revenue is automatically populated in your accounting system based on the periods related to when services are rendered.
Zapier - We’re big fans of Zapier, can you tell? Depending on which portal you’re using for your SaaS product - you can try to automate deferred revenue rows and schedules into a Google Sheet where formulas then pick things up from there.

PAYROLL ACCRUALS

Although payroll accruals can be used for all companies in all types of industries, we’re mentioning it in a blog post about SaaS companies because this is where we see most requests coming from. Venture-funded SaaS companies can have stringent reporting requirements and one of those requirements is to have all the accounting completed on an accrual basis.

Expense accruals are the mirror image of the ‘Deferred Revenue’ example that was noted above. More specifically, the goal is to ensure that expenses are recorded in the actual month that they were incurred. For example, if pay day falls on June 1 but was for the working periods of May 17 to June 1, payroll accruals ensure that on May 31, a prorated amount of payroll related to May is entered in the corresponding month (May) and the rest (i.e. one day) is entered in June.

By matching expenses and revenues to the month that they are incurred/earned gives you a more holistic view of the company’s month-over-month performance.

Bi-weekly Payroll

Another topic to discuss is bi-weekly payroll - when a company has a bi-weekly pay period (i.e. every 14 days - let’s say - every other Friday) versus a company that has payroll on the 15th and last day of the month.

Due to the nature of bi-weekly payroll timing, there are two months in the year where there are three payroll periods. Over a full year, a company’s expense outlay is exactly the same but from a financial statement presentation standpoint, there are fluctuations in the payroll expense category on a monthly basis.

Adjusting for and accruing for payroll solves this pain-point or many companies just opt to switch to a semi-monthly payroll frequency.

FINAL THOUGHTS

Information over performance is important for every company, but for high-growth SaaS companies it is critical. Financial performance metrics provide leadership teams with the ability to make decisions over pricing and hiring, and helps provide clarity about whether the business model works. Organized financial statements can also provide a basis for forecasting and can result in less delays when raising money for investment purposes/growth. Keep the key items above in mind when setting up bookkeeping processes for SaaS companies.

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