Startups · Finance

What is a good accounting solution for a pure SaaS/cloud business?

Alex Eckelberry CEO at Meros.io

August 29th, 2015

Curious what's hot these days, specifically accounting apps that can handle the deferred revenue, MRR/ARR sales models common to cloud business.  

Glenn Donovan Vice President of Sales (fractional)

September 4th, 2015

Any VC who tells you they won't invest because of the accounting software you use should make you exit the room faster than they ask you to leave. It's a preposterous comment and POV. but it does reflect the most disturbing trend I see in startups today. VCs play far too large an operational role in the businesses they invest in. Perhaps that's why some of them like investing in 20something technology types to whom they can easily dictate to and control because they don't really know jack about business to begin with. 

But at the end of the day, as long as the invoices go out, payments are timely, and a balance sheet/income statement is produced readily and accurately, that's all an investor should ever concern themselves about wrt accounting. It's just amazing to me how deeply VCs tinker with their portfolio companies these days, and it's counterproductive in most cases. If they want to run companies, they should go start them. 

Color me as looking for quiet, patient money for my clients. Anyone out here represent quiet, patient money? 

Alex Eckelberry CEO at Meros.io

August 29th, 2015

@Andrew Lockley, Xero is certainly very simple, but I'm not getting a good feeling that it's built for a SaaS model business. Have you seen it used in this environment? 

Mark Wald Managing Director at Supporting Strategies - Santa Monica

August 29th, 2015

@Andrew
Would you please qualify your response above--which VC's have you heard that about and/or who have you heard that from?

Based on my professional experience, I can say with confidence that Xero is NOT an appropriate platform to handle fully automated MRR/ARR billing and proper accrual-based revenue recognition of SaaS businesses. It is possible for skilled accounting resources (people) to use the native Xero software to facilitate billing and revenue recognition for many businesses, but let's be clear--that requires a combination of MANUAL processes to bridge the gap between what Xero is currently designed to handle vs what a SaaS business with prepaid subscription and recurring billing functions really needs. To be clear, QuickBooks also doesn't currently offer a fully automated/integrated solution to facilitate the process Alex is asking about.

Bottom line, businesses either need to budget $25-50k to implement and configure a robust ERP software like Netsuite to manage a nearly fully automated process for this plus $20-75k/year annual licensing fees, or use a combination of much less expensive software plus skilled labor resources to accomplish the same thing with a more process-driven approach.

Mark

Alex Eckelberry CEO at Meros.io

August 29th, 2015

My concern was I went to their website, asked them a question about ARR in their chat app, and they were clueless. But I will take a stronger look. Certainly it looks painless and incredibly easy to use. 

Mark Wald Managing Director at Supporting Strategies - Santa Monica

August 29th, 2015

Netsuite is the gold standard for robust cloud-based accounting with programmable functionality to customize and automate processing of recurring transactions--but it is prohibitively expensive for an early stage startup.  There are also many 3rd party billing apps that integrate with the accounting software and enable more customized and automated MRR billing functions. Message me and I'll be happy to share more details with you. 
Regardless of the software you use, it is critical that you have the right people and processes in place to manage your billing, revenue recognition, and all other accounting functions to ensure timely, accurate, and actionable financial reporting that enable management to make educated strategic decisions in real time. 


Karel Leeflang MD StrategyPod and Co-founder SoAmpli

August 31st, 2015

We run a SaaS business with multiple revenue streams and really like Xero - effective, efficient, easy to use and easy to integrate with banks etc.  We have our key metrics and cash flow up to date.  Hope this helps,

Mark Stephenson Head of Technology and Delivery at evvnt

August 30th, 2015

I inherited Xero as the accountancy platform of choice when we were acquired.  We have one full time accounts manager to spends most of her time in there.  Its not massively flexible around reporting and the matching of payments etc has been a real pain over the API.  On that point you should note that Xero themselves say that you should only use them if you are going to do less than 20000 transactions (I think thats the number)  a month.  This might be perfect for some, but completely prohibitive for others.  If we continue to grow at the rate we do then the integration we have in place with Xero will have to be ripped out and we'll effectively have to start again.

Alex Eckelberry CEO at Meros.io

September 1st, 2015

Really great advice everyone. We have decided to do the Stripe/Baremetric route with QB Online. Then, when we get some scale, go for a full professional ERP solution like Intacct or Netsuite. 

Thanks again for all the help. It's been really useful. 

Matt Finick Consulting CFO and Advisor at Propeller Industries

September 1st, 2015

I Agree with many comments above that SaaS is a special animal. We have clients using Stripe/Baremetrics to collect data and then Intacct for accounting. Regarding QB vs Xero, we have over 100+ customers (outsourced accounting/CFO firm) and 90% are on QB desktop (via cloud server) and 10% Xero. I doubt a VC would ever turn down a company for the accounting software they are using, but Xero is a lightweight solution. QB online doesn't have the power of the desktop version, but works early on. If you are early stage, go with a simpler system, and then upgrade to Intacct/Netsuite later. The cost of people to manage these more robust systems will be too much early on.

Sharai Lavoie CEO of Lavoie CPA~Accounting~Advanced Technology~Process Improvement and Automation~Startup Support

August 31st, 2015

I would suggest you take a look at Intacct.  We use it for a subscription based software client and the deferred revenue works great and there are options to define your revenue recognition schedules.  Intacct is a full ERP system which will grow with your needs.