Technology & Innovation

The role of AI in SaaS finance and accounting

Discover how AI is revolutionizing finance and accounting in the SaaS industry. This post offers insights, use cases, and more.

In today’s fast-paced world, minutes matter. That’s especially true when it comes to corporate finance and accounting in SaaS. In this article, we delve into the basics of SaaS finance and accounting, exploring how AI intersects with these fields.

(1) We’ll start by outlining some key differences between SaaS finance and SaaS accounting. Then, (2) we’ll cover AI’s benefits to both areas and some use cases for how automation can streamline your forecasting, compliance, board reporting, and more. If your department is still operating manually, you might be second-guessing that choice by the end of this post.

Understanding the basics of SaaS finance and SaaS accounting

Although SaaS finance and SaaS accounting are heavily related, they focus on distinct goals. The main difference is that SaaS finance involves optimizing billing, forecasting, and financial performance, while SaaS accounting tracks the flow of money through your organization. 

The first is concerned with optimizing results, while the second is primarily about verifying financial data. The accounting arm of a company is also responsible for preparing official documents like your income statement, cash flow statement, balance sheet, and various financial reports.

The two areas work together, and as a CFO, you naturally draw on both for effective financial management and decision-making. Let’s look more closely at the tasks and responsibilities associated with each of them.

What is SaaS accounting?

SaaS accounting records financial events that have already taken place at your company. It also involves taking steps to stay in line with applicable regulations. Some of its primary workflows include:

  • Financial reporting: Tracking and updating SaaS metrics and financial performance is a core component of SaaS accounting. SaaS CFOs use automated tools like role-based dashboards to help them streamline their reporting, eliminate the risk of duplicate journal entries, and track their organization’s monetary resources.
  • Tax prep: The accounting department is also responsible for overseeing the creation of the company’s financial statements, tax documents, and any multi-entity accounting that needs to be done for the organization.
  • Compliance: In addition to complying with generally accepted accounting principles (GAAP), recurring revenue SaaS companies must abide by ASC 606. It lays out a very specific method for recognizing revenue.

 How does SaaS finance compare to SaaS accounting?

What is SaaS finance?

SaaS finance involves optimizing financial transactions and cash flow as opposed to simply recording them. It ensures effective financial planning and analysis (FP&A) and seeks to improve and protect your company’s long-term profitability. 

Some major workflows in SaaS finance are: 

  • Revenue forecasting: Forecasting is at the heart of SaaS finance, and FP&A. Finance teams use various forecasting techniques to make informed decisions about future revenue growth and customer behavior.
  • SaaS billing optimization: Your choice of billing model directly impacts your overall profitability and the likelihood of customer renewals. The finance team at a SaaS company is responsible for creating a billing strategy that customers can’t say no to.
  • Strategic budget planning: SaaS finance focuses on the future rather than the past, and budget optimization is essential to future business performance. Effective SaaS budgeting ensures that every department at your company has sufficient capital for its projects and helps facilitate the effective management of money.

Now that we’ve covered their major differences, let’s see how both disciplines benefit from automation.

Benefits of AI in SaaS finance and accounting

AI has been at the forefront of change in many professional sectors, and SaaS accounting is no exception. SaaS CFOs and finance leaders are using AI accounting to achieve more with less and to streamline virtually every aspect of their departments.

Elimination of manual workflows

AI revolutionizes finance and accounting by automating repetitive manual tasks such as invoice processing and data entry. The result is enhanced efficiency, accuracy, and overall performance. This unlocks significant financial savings over time and eliminates manual errors.

An accounting suite equipped with AI can also:

Slash manual audit prep

Manually preparing for an audit can range from time-consuming to downright nightmarish, depending on various factors. AI takes 100% of the stress out of audit prep with automatic drill-down data. Auditors can see when a customer relationship started and ended and precisely why it was altered.

End revenue leakage once and for all

Revenue leakage is one of the most predictable yet frustrating consequences of manual accounting. The rev rec process has so many moving pieces that leakage is almost guaranteed unless the process is fully automated. AI eliminates revenue leakage with a single source of truth (SSOT).

Turn multi-entity accounting into a breeze

Many SaaS companies operate internationally or have plans to. This comes with many new revenue opportunities but also introduces tremendous complexities if tackled manually. Automation can set you up for seamless and stress-free growth, no matter how complex your corporate structuring becomes.

With AI, organizations can optimize their financial management and achieve their financial goals more effectively.

Improved visibility for strategic decisions

AI revolutionizes decision-making in finance and accounting by providing accurate and timely insights. Through quick analysis of vast amounts of data, AI identifies trends and patterns that help organizations make more informed and profitable choices.

  • Enhanced quantitative analysis for risk management: Staying ahead of negative financial trends and customer behavior like churn levels or downgrades is pivotally important. AI continuously scans the horizon for financial threats so you can correct course quickly and effectively.
  • Clarity on how your deferred revenue impacts your cash position: Deferred revenue significantly affects your organization’s financial health. Manually keeping track of deferred revenue waterfalls is tricky at best and potentially disastrous at worst. Automation provides real-time insights into your deferred revenue so you’re never unsure of your cash position.
Deferred revenue data for a SaaS company.

Harnessing AI unlocks the potential for more effective decision-making in an increasingly data-driven industry.

Connected teams and dismantled data silos

You should consider data silos one of the largest obstacles to effectiveness at your company. Data siloing occurs when teams or departments update their data and then share it with the rest of the organization.

This wastes large amounts of time and money and has the potential for manual mistakes that can impact your general ledger. By contrast, cloud-based automation conveniently centralizes and continuously updates your data.

Let’s check out some day-to-day examples of how SaaS CFOs use automation in their departments.

How can SaaS accounting departments benefit from AI?

Automation makes many aspects of financial accounting and FP&A much faster and more accurate. Compare that to manual task performance, where an increase in errors usually accompanies a significant jump in speed. Not so with algorithmic accounting. 

Below are five examples of how AI streamlines major SaaS accounting workflows while delivering more robust results.

Use case 1: AI-powered SaaS forecasting

AI algorithms leverage your historical data to predict future revenue, expenses, and customer trends. AI-powered forecast models can provide your department with more powerful financial projections than traditional forecasting methods. Automated forecasts lower variance rates and increase forecast ranges, contributing to their growing popularity among SaaS finance leaders.

Enhanced forecasting will enable you to optimize pricing strategies and more readily identify growth opportunities. Beyond that, AI forecasting models dynamically adjust based on changing market conditions, ensuring up-to-date predictions that deliver ROI.

Use case 2: Automated SaaS compliance

SaaS deferred revenue accounting has a different set of requirements than accrual accounting. AI revolutionizes compliance processes, ensuring adherence to regulations like ASC 606, IFRS 15, and other active regulations in the United States and elsewhere. Automating compliance significantly reduces your organization’s risk of penalties and reputational damage.

Moreover, AI identifies compliance gaps and suggests corrective actions, enabling organizations to proactively maintain compliance. Real-time monitoring via AI empowers businesses to stay ahead of evolving compliance requirements for total peace of mind.

Use case 3: Optimized board reporting

AI can revolutionize board reporting for SaaS finance leaders. When you present your data with AI-powered dashboards, board members gain real-time insights into the company’s financial performance. Data visualization tools like charts and graphs help you weave a compelling financial narrative for your board and help them grasp the company’s financial position.

Manual board reporting can hold your company back from achieving its full potential. 

Use case 4: Valuation & capitalization readouts

Many SaaS companies go through funding rounds to raise investor capital. This is a high-stakes process, and the hassle of handling it manually can result in all kinds of issues:

  • Inaccurate capitalization data
  • Failure to hit your funding obligations
  • Getting bogged down in manual tasks at the cost of strategy
A capitalization table for a SaaS organization.

Taking external funds can help you expand much more rapidly, but it also ratchets up the pressure on your company. Effectively handling capitalization and external investment management can be tough. AI helps you keep your focus where it should be–on making sure your company hits its funding obligations.

RELATED: Hit Your Funding Objectives Across Your Company Lifecycle

Use case 5: Cut the close

At some point in your life–probably close to when you got your accounting degree–you’ve likely asked a question. “What if there were a way to eliminate the month-end close?” After all, it’s one of the most ubiquitously dreaded manual finance processes and one of the easiest to mess up.

Automation offers a solution. Rather than closing your books in one fell swoop at the end of the month, accounting AI continuously runs in the background and closes them with each new transaction. It’s more accurate, costs less, and saves time.

Embrace AI intelligently–you win when you don’t rush in

AI can have a tremendously positive impact on the efficiency of your accounting department. But contrary to popular belief, it’s not quite a matter of “set it and forget it.” Achieving a successful migration to AI requires you to step back for a moment, take a good look at your organization, and ask five important questions.

Check out our recent ebook to discover what those are, and learn how your company can seamlessly transition to automation. You can read it here.

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