Money Matters

10 tips for managing finances as a subscription business

Running a subscription business? Here's how using tech can help you manage billing and other financial requirements with ease.

Curious about the subscription economy?

Here’s how it works: your business takes recurring payments every month or year from customers so they can continue using (or receiving) your product or service.

Recurring billing is where you’ve convinced a customer to spend money with you on a contract basis.

This idea isn’t new—think of subscriptions to magazines, where you paid upfront for guaranteed deliveries in your mailbox.

In this article, we dive into the details of managing finances as a subscription business.

Here’s what we cover:

Software as a Service (SaaS) subscriptions

Today, we associate subscriptions with recurring payments for the use of cloud services.

Think of businesses such as Amazon, Spotify or Netflix charging you for a service such as Amazon Prime, non-advertorial music streaming or streaming TV respectively.

Why are people willing to pay?

Fees are affordable, it’s convenient and you can easily customise the experience.

In the business to business (B2B) sector, offering subscription commerce is a way you can offer customers products or services they want to use and replace over a predictable period, without them having to shell out one big lump sum.

With a field service agreement, you can provide regular maintenance and cover for unforeseen problems, which gives reassurance customers are willing to pay for.

The subscription business model is here to stay for modern software companies.

It’s a very appealing option because if your customer sees value in your business, they’ll continue to pay for it. The longer the customer stays with you, the more valuable they will be—that compounding growth is very compelling.

Setting up subscription billing

If you think your business warrants charging customers repeatedly as part of a subscription, then it makes sense to go for it. However, it’s not as easy as taking online payments and setting up an e-commerce website.

Setting up your business for subscription billing takes work.

It may involve you implementing new technology, as you’ll have to set customers up with contracts, automating processes such as sales, revenue management, and invoicing.

In addition, you may need to report and audit your finances, whether that’s for the benefit of stakeholders such as investors or making sure you’re doing things the right way through compliance.

Reporting and analysis will be much easier if you’re using modern cloud financial software.

Managing subscriptions? 10 things to consider

So, what do you need to do to manage subscriptions the right way? Start with these…

1. Automate everything

Imagine managing contracts and subscriptions with spreadsheets or basic accounting software. Dealing with upsells, down sells, renewals and cancellations—it’s going to be a massive headache.

Automation is an absolute necessity to manage billing and revenue within a growing SaaS business.

As well as making your team’s job a lot easier, it will support compliance requirements and provide you with instant forecasting for revenue, billing and cash.

2. Connect sales and accounting

If your processes are manual, your sales and accounting departments will need to connect by re-keying data.

Imagine how long that will take and how this tedious work could negatively affect your sales and finance people.

For a modern SaaS subscription business, you need to connect sales and accounting with one subscription system of record that goes from the first sales quote to the general ledger, reporting and forecasting.

3. Get compliance right

Compliance is crucial.

It’ll protect you and your customers, and bring security to your infrastructure, as well as draw confidence in your brand.

When managing subscriptions, make sure you are ASC 606 (in the US) and IFRS-15 (internationally) compliant, which requires you to prove a solid accounting baseline to report, bill and recognise revenue.

4. One-click customer contracts

Within a subscription-based business, your contract with a customer is a living and breathing representation of your financial relationship for as long as they are with you.

Throughout their time with your business, this contract may change.

You need software that updates any changes to the contract within all the relevant financial records.

Looking in detail at a customer’s contract, you don’t want to look at different reports, spreadsheets, or a separate customer management system—you need it a click away.

5. Change customer contracts easily

It’s not only hard to find the information you’re looking for in a contract. Making manual changes can be painful, such as amendments, cancellations, holds, resumes, or renewals.

Look at deep automation to cut manual processes and make changes required for accurate revenue and billing.

6. Review contracts with a compliance checklist

Do periodic reviews to deliver and honour contract obligations with your customers.

Create a checklist of tasks.

When you complete each checklist item, any user with the proper permissions can enter the relevant completion detail in the contract, providing a solid audit trail.

7. Adopt a continuous close model

With a subscription business, banish the idea of month-end closes.

Adopt a continuous or rolling close, where you keep accounts up to date daily, supplying financial information at any time during the monthly reporting.

8. Unify your billing

As you grow the subscription business, expand what you offer to win new customers and keep existing ones—it’ll allow you to price your product and services higher.

Have software to cope with various billing models, such as subscription pricing, usage billing, professional services, and perpetual licensing.

9. Real-time forecast

Finances of a subscription business can be complex, and the sales and accounting team will need to work with one authentic version of the truth when it comes to billing, revenue, and cash.

Look for the ability to automatically generate forecasts, which will help you make decisions such as hiring, product investment, acquisitions and much more.

10. Use a modern general ledger

Subscription businesses have complex reporting requirements.

That means you’ll want a modern ledger solution that can help you meet the challenges of tax, statutory, regulatory and management reporting.

Is subscription billing for you?

If you’re in a position where a customer is willing to spend recurringly with you for months and even years, then well done—you offer a deep, long-lasting experience that keeps them coming back.

But, as we’ve discussed, getting the financial setup right is necessary for you to grow as fast as your potential allows.

Hopefully, this article has given you the information you need to start dealing with the financial complexity of a subscription business. There’s more detail in our downloadable guide.