As a SaaS CFO, you understand the value of accounting automation in streamlining processes, boosting your cash flow and number of subscribers, and improving overall efficiency. But convincing others in your organization to embrace new software solutions can be challenging. In this blog, we’ll explore why accounting automation is crucial for SaaS companies, how it solves CFOs’ challenges in manual accounting, and share specific strategies for building organizational buy-in.
We’ll also dive into the intricacies of SaaS revenue recognition and the impact of ASC 606 on this process and share how to use these financial points to build your automation use case. Let’s get started.
The value of accounting automation in SaaS
Automating the repetitive processes performed by your accounting team offers numerous benefits. Let’s review three of the most significant.
1. Increased efficiency and accuracy: Cutting manual data entry is the best way to eliminate the risk of human error. From cancellations to bookings and refunds, you can stop worrying about costly mistakes.
2. Cloud-based accounting improves data visibility and security: Through real-time access to financial information, CFOs can make decisions that contribute to long-term profitability. Automation also enhances security by mitigating fraud risks and streamlines compliance–we’ll be going into this in much more detail below.
3. Automation balances accounting and FP&A: The finance department has two functions. Accounting is backward-looking and focuses on reporting, whereas financial planning and analysis (FP&A) centers on strategic initiatives. Because manual accounting is inefficient, it often forces teams to spend so much time on accounting tasks that FP&A gets neglected.
Accounting automation is essential for SaaS businesses seeking streamlined operations and enhanced financial management. Let’s take a look at how it benefits SaaS CFOs in particular.
The benefits of accounting automation for SaaS CFOs
As your SaaS business continues to grow and evolve, the demands placed on you as a CFO grow in size and complexity. Automation instantly levels the workload terrain for CFOs and their teams–in other words, your day-to-day workflow won’t spiral out of control if your company experiences a sudden rapid scaling event.
If that happens, AI and ML will do all the necessary but repetitive work required to catch your GL up with the growth you’ve experienced. You and your team will be free for high-level strategizing. This is an important point for generating buy-in with stakeholders. A CFO and finance department with maximized bandwidth and concentration is a huge plus for your entire company.
Additionally, automated role-based dashboards are a tremendous way to maximize the effectiveness of your board meetings. They pull all the metrics you’ll present into one convenient screen and offer detailed visuals for financial storytelling.
Now we’ll break down some of the primary challenges SaaS CFOs confront when using manual accounting methods and explore how AI and ML can turn things around.
Challenges faced by CFOs in manual accounting and what you can do about them
The decision to base your department around manual or automated financial processes impacts every financial activity at your company. From reporting and forecasting to revenue recognition, taxes, and much more, the effectiveness of every task is negatively affected by manual performance. Below are a handful of the main issues in manually-run SaaS accounting departments.
Manual accounting processes are time-consuming and prone to inaccuracies, leading to problems in financial reporting.
Because of this, CFOs often encounter challenges with data accuracy and missed deadlines when relying on manual processes. Accounting automation offers a solution by streamlining financial operations, improving accuracy, and providing real-time insights for profitable decision-making.
Revenue recognition isn’t synced: each department updates its own data, leading to persistent revenue leakage.
Revenue leakage is a major problem for SaaS companies that handle their accounting manually because data silos practically guarantee ASC 606 slip-ups. Automation eliminates this problem through data centralization.
Forecasts are assembled from spreadsheets sent as email attachments.
This results in manual errors, slow forecast assembly, and high variance rates. Cloud-based forecasting is much simpler than traditional forecast assembly. Just plug in your starting data, click a button, and you’ll immediately get a low-variance, highly detailed forecast.
A lack of integrated financial visibility leads to one missed opportunity after another.
Maintaining consistent financial visibility is essential for CFOs and other finance leaders but very difficult to achieve manually. Automated role-based dashboards give your company’s finance and accounting leaders all the data they need in real-time.
Explaining all this to other stakeholders will help them see things from your perspective and understand the benefits of automation for the whole company. On that same note, let’s get into why automation is crucial for SaaS companies in particular.
Why is automation essential for recurring revenue businesses like SaaS companies?
Since subscription businesses like SaaS companies must abide by a unique set of accounting rules, automation is crucial for these organizations.
ASC 606 and SaaS revenue recognition: background and best practices
ASC 606 was implemented in 2014 by the Financial Accounting Standards Board (FASB). It’s an accounting standard that governs revenue recognition in the SaaS industry and aims to keep companies from unfairly inflating their revenue figures. As we mentioned above, SaaS companies must recognize revenue across time until the end of the contract, as opposed to all at once when an invoice is paid.
SaaS CFOs must comprehensively understand ASC 606’s specifics and how they apply to their company’s revenue recognition practices. In particular, creating a revenue recognition strategy is an excellent idea.
Understanding SaaS revenue recognition
SaaS revenue recognition involves the accounting process of recording and recognizing revenue from SaaS business models. It entails recognizing revenue over time instead of upfront and allocating it to various usage-based periods through customer contracts. The core stipulation is this: you cannot record revenue as earned unless you’ve met the underlying performance obligations.
Let’s say someone buys an annual subscription to your SaaS product for $400. You can’t immediately record the full amount as earned revenue. You need to track the exact service obligations tied to that payment and record each period’s payment as earned once those obligations are satisfied. Until then, that unearned revenue stays a liability on your books.
Proper revenue recognition also impacts key business metrics such as monthly recurring revenue (MRR) and annual recurring revenue (ARR), which are vital for measuring growth and business valuation. As a CFO, you should collaborate with your finance team and auditor to establish proper documentation, policies, and processes for accurate SaaS revenue recognition.
By automating this important process, CFOs can save time, reduce the risk of errors or non-compliance, and generate buy-in from stakeholders by highlighting benefits like increased efficiency, cost savings, and improved financial reporting.
Implementing automated accounting systems can streamline the revenue recognition process, ensuring compliance with ASC 606 and providing much-needed transparency. Let’s see how.
The role of accounting automation in compliance and revenue recognition
Compliance and revenue recognition are two areas that see instant benefits from automation, so it’s important to bring them up with stakeholders when generating buy-in. Below are some of the most important points to mention to other decision-makers when discussing a move to AI.
- Real-time visibility into revenue streams: This enables better forecasting and decision-making around deferred revenue waterfalls. Manual accounting makes it difficult to fully understand how your deferred revenue impacts your current cash position.
- Gets rid of data silos: Data silos are one of the largest obstacles to efficient revenue recognition. Accounting automation centralizes the process, eliminating the hassle and the risk of manual workflows.
- Data drill-down: As a CFO, it’s on you to prove compliance. Automation makes that simple. Easily access detailed data about each customer’s transactional history with your company with drill-down functionality. Data around when and why transaction relationships changed will be automatically stored in the cloud for peace of mind during an audit.
Properly communicating the benefits of accounting automation to stakeholders, the executive team and your board of directors is very important. Revenue recognition is just the tip of the iceberg. How else can you generate buy-in, and why does it matter that you do so?
Generating buy-in for accounting automation: why it matters
As a SaaS finance leader, you need to think of yourself as an “ambassador for AI” at your company. For organizations of all sizes, the finance function is usually the first to be automated. Additionally, CFOs tend to intuitively grasp the value of AI and ML since they regularly work with vast datasets. This puts you in a prime spot to convey the value of automation to your colleagues.
Companies that embrace automation gain a competitive advantage by becoming more agile and responsive. If stakeholders at your company see you embracing automation and see the benefits that follow from that, they’ll be more likely to integrate automation into their own teams. You could start a positive trend in efficiency across your whole company.
At the very least, though, you need to communicate the benefits of financial automation clearly and effectively. What are some concrete ways you could accomplish that?
How can SaaS CFOs advocate for accounting automation?
Successfully advocating for accounting automation at your company involves the following steps. Each one plays an important role in helping pave the way for change and increased efficiency across your SaaS organization.
- Sharing success stories: Social proof is always important when persuading people to adapt to something new. Show stakeholders the success stories occurring at other companies that eliminated manual accounting.
- Highlighting the benefits of automation for everyone: Emphasize that real-time visibility into SaaS metrics enables the finance team to support other departments much more effectively. From sales and marketing to customer success, every department relies on data managed by the finance team.
- Presenting a clear implementation plan: Present a phased rollout plan to stakeholders to help them understand two things. First, the shift to automation is gradual and doesn’t occur overnight. And second, you’ll be following a clear and structured plan to implement the new software. This also allows everyone to ask questions and address concerns about the rollout.
Increased efficiency, reduced errors, cost savings, and real-life examples can help convince stakeholders. Providing solutions to objections and offering training and support are also crucial for successful adoption.
Overcoming resistance to change in accounting practices
To successfully implement accounting automation in your SaaS company, addressing and overcoming resistance to change in accounting practices is important. To do this well, you need to understand the various causes of your colleagues’ resistance, if they have any.
Below are some common pain points that stakeholders and employees might have and suggestions for effectively addressing these doubts.
Fears surrounding job security
It’s completely natural that this misgiving would come up when dealing with a move to AI and ML. You should assure your team–and it’s the truth–that these tools won’t replace them. This tech is meant to free human employees up for more strategically valuable contributions that help the company reach its full potential.
Lack of competence with automated tools
This is another completely understandable pain point. Luckily, it’s an easy fix. Software providers offer setup services that ensure a smooth transition to AI and in-depth training sessions to help your team quickly become skilled with this new tech.
Lack of team involvement and investment
No one at a company likes to feel as though they’re “just along for the ride.” Create a feeling of team involvement and personal investment in the shift to automation as early as possible, well before the actual rollout. Discuss it at meetings when appropriate, get input and ideas from others, and try to make everyone feel heard. As we said earlier, there’s no reason why automation should stop with the finance team. This is a great way to put ideas in your colleagues’ minds about optimizing their departments.
Generate buy-in for accounting automation in 6 easy steps
The benefits of accounting automation for SaaS organizations are virtually indisputable. Still, that doesn’t mean it’s always a straightforward path to trading in legacy accounting for modern tools. Especially if your organization is more mature, you might face heightened resistance to change at your company.
Our recent ebook lays out a tried and tested 6-step model for creating your persuasive use case for these powerful technologies. You can read it here.