The Role of Finance and Accounting in SaaS

The role of finance and accounting in a SaaS company is probably a mystery to most. Yes, we pay the bills and say “no” to a lot of expenditure requests, but there is a lot going in the back office. And, as your SaaS business scales, so must the capabilities of your finance and accounting team.

I had never intended to publish the duties below, but, now, I believe it’s important for SaaS founders and growing finance and accounting teams to know what “they don’t know.”

This list may not be all encompassing and vary company to company, but it will get you thinking about the scope of duties that are necessary in a SaaS company. I hope it uncovers missing or to-be-determined functional areas and identifies next steps in the evolution of your team.

In addition to the duties below, I’ll also touch upon my framework when building out a finance and accounting team and why operational knowledge is the key to success as a finance leader.

People, Process, Data and Technology

People, process, and technology are important to a highly functioning finance and accounting team. Whenever I begin a new position or perform due diligence on a target, I use these three areas to determinate the maturity and capabilities of the finance and accounting team.

Accounting is very transaction oriented, obviously. You can’t just brute force your way to better performance. Forcing your way through the monthly process requires more headcount, produces less financial visibility, and results in more mistakes.

It’s not fancy, but sometimes just improved process can make a big difference in in your monthly close and accounting workflow. For example, using a monthly close calendar assigns accountability and deadlines. And you won’t forget to make the required entries to close the books each month.

Next, you need to overlay technology. With the volume of transactions and data in your operations, it’s critical to implement the correct technology infrastructure. Although I love spreadsheets, they can only take you so far before the process breaks down.

Check out my annual SaaS tech stack survey to see what your SaaS peers use in their operations.

Understanding Operations is Key to Success

To be an effective finance leader, you must understand the operations of your SaaS business. My time in the airline industry on FP&A teams made this clear. It’s very difficult to explain the performance of your business and accurately forecast your financials without operational knowledge.

To improve your understanding, you must reach out to department leaders to learn about their operations and day-to-day activities. In turn, you can coach them through their P&L, forecast, and budget. This is where finance becomes a strategic partner.

Your financial statements are the result of all the decisions and activities of your business. You hire more people. Wages go up. The numbers tell a story.
Your job is to translate the financials back into an operational story. With this knowledge in hand, you can provide financial transparency, provide relevant back to department leaders, and make more proactive decisions.

Did I miss anything below? Please post in the comments. Download my close calendar checklist below!

Finance and Accounting Duties

Accounting

• Corporate Tax
  • Coordinate annual tax returns with your tax accountant
  • Provide required financial data (often called a PBC list, “provide by client”) to tax accountants to complete federal and state returns
  • Pay estimated quarterly taxes/fees to states where you file
  • Manage IRS notifications
• Subscription Renewals
  • Manage monthly renewal process if customers receive actual invoice for payment
    • Batch process renewal invoices XX days in advance of anniversary date
    • Answer customer billing questions
    • Follow up on past due invoices
  • If customers’ credit cards are charged automatically, follow up on declined payments
    • Pull monthly report showing MRR for new customers, expansion, contraction, reactivations, and churn (I like the SaaS Quick Ratio to keep track)
• Professional Services Invoicing
  • Invoice customers for active service projects
  • Invoicing based on payment terms in contract
    • Payment terms ca be hourly, fixed fee, milestones, etc.
    • Perform proper revenue recognition if needed
  • Bill back customers for billable travel if traveling to client sites
    • Document receipts
• Accounts Payable
  • Enter vendor invoices into accounting system on timely basis
  • Coordinate department level approval for larger, discretionary spend
  • Pay vendors twice a month via ACH/check payments
  • Employee expense report processing
    • Import/load expense reports from XX software to accounting system
    • Reimburse employees on twice a month cycle
• Customer Deposits
  • Reconcile credit card deposits to open invoices
  • Reconcile ACH/wire deposits to open invoices
  • Deposit customer checks via scanner or at bank
• Revenue Recognition
  • During monthly close, run subscription revenue recognition process in accounting system
  • During monthly close, run services revenue recognition process in accounting system
  • Make sure you have a subledger that matches your general ledger balance
    • Subledger details customer start/end dates, amount invoiced, and remained deferred balance
• Accounting Software Maintenance
  • Contact maintenance
  • Account status; active or inactive
  • Vendor maintenance
  • Account maintenance
  • Product ID’s/SKU’s
    • Important accounting info tied to these ID’s
  • General ledger accounts
• Cash Collections on Accounts Receivable
  • Formal follow up process on past due invoices
    • Combination of email and phone calls
      • Document in CRM system
  • Escalate trouble payments to Services if still in implementation; escalate to Customer Success if customer is live
• Banking/Treasury Management
  • Cash management
  • Bank to GL reconciliations
  • Payroll funding
  • Check/ACH/wire approvals
• Financial Audit
  • Annual financial statement audit through XX audit firm
  • Provide necessary data (PBC list)
    • A lot of this data/reporting should be part of your normal close process
      • If not, chance to improve accounting close
  • Work with auditors on questions and follow ups
  • Preliminary field work in November and final field work in late January (this is a tight turnaround but provides more time for tax accountants)
• New Closed Won Invoicing
  • Set up Billing Contracts in accounting software
  • Set up milestone payments for Services revenue
  • Processing new closed wons weekly
  • Notify Support/others of new customer activation
• Monthly close
  • I try to close the books in five business days
    • Close should not take all month
  • Download my close calendar below
• Churn Notification
  • Manage churn notification process
  • Notify internal stakeholders and update customer status in CRM/accounting
  • Track
• State Registrations for Corporate Entity
  • Annual state report filings
  • New filings
  • Nexus status in other states
• Sales Tax Compliance
  • This is a very manual, tedious process if you do not have sales tax compliance software
  • Ensure integration is working between accounting software and sales tax software
  • Reconcile subledger in sales tax software to GL balance
  • Monitor sales tax changes in states/countries where we do business
• Annual Compensation Review
  • With human resources, manage annual merit and compensation process
  • Work with sales to understand/change/create sales compensation plans
• Company Bonus Management
  • Administer the tracking and calculation of bonus compensation
  • Enter monthly accrual during close process
  • Reconcile accrual versus cash paid
  • Manage payouts with HR/payroll
• Stock Compensation
  • Calculate annual stock-based compensation expense
  • Make quarterly journal entries
  • Manage/update capitalization table
• Independent Contractors
  • Request W-9
  • Set up vendor in accounting software
  • 1099 issuance in January
• Corporate Credit Card Management
  • Create/delete users
  • Request new cards
  • Fraud management
• Integrations
  • Manage integrations to/from accounting software
• Vendor Agreements
  • Negotiate and manage major vendor agreements
    • Leases, software, benefits, etc.
• Commercial Insurance
  • Manage annual renewal process
  • Complete insurance applications
  • Ensure insurance is sized correctly for scope and operations of your business
• Contracting
  • New contract management process
  • Existing contract administration
  • Legal review and negotiations with customers
  • Contract customizations
  • Certificate of Insurance (COI) management
  • State/municipal documentation requirements
  • RFP language reviews
  • Checks and balances in the contracting process
    • Scope review
    • Approval and discount
• 401k Administration
  • Plan design and administration
  • 401k audit
  • Year-end reporting and compliance
  • Form 5500 preparation and reporting
  • Tactical administration of employee additions/departures, employee requests

Finance

• Monthly Board Reporting
  • After close, complete Board package
    • Latest financials
    • Latest forecast
    • SaaS metrics
    • Sales updates
    • Pipeline updates
• Budget Process
  • Manage annual budget process
  • If calendar fiscal year, kick off budget season in October with presentation to Board in December
  • Work with department leaders to crate department level expense budgets
  • Works with sales leader/Board to set up bookings targets which drives revenue model
  • Create Board budget slides
• Forecasting
  • After close, update current year financial forecast
  • Monthly process
  • Work with department heads to solicit necessary inputs to update bookings, revenue, headcount and expense assumptions
• Metrics/Churn/Retention Reporting
  • Update churn/retention report
• Ad-hoc financial analysis
  • Labor analysis
  • Product investments
  • Sales pipeline analysis
  • And on…
• Bank Compliance
  • Monthly, quarterly, annual process if you have debt
  • Update covenant calculations, MD&A, and financial statements
• Mergers and Acquisitions
  • Preliminary due diligence
    • Review financials and customer data
  • Final due diligence
    • Review all finance, accounting, tax, legal, and HR documents
    • Conduct due diligence interviews

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