The idea of cloud computing is not new. As far back as the 1970s, the cloud symbol was used to represent a cluster of networks in ARPANET, a predecessor of today's internet. But in the last decade, cloud has become much more prominent as a business tool.
Software as a Service is perhaps the best example of the cloud's growing reach. Gartner has estimated that public cloud would be a $204 billion market in 2016, with SaaS making up 18.5 percent of the total and enjoying 20.3 percent year-over-year growth, according to ZDNet.
As they grow, SaaS vendors face unique accounting challenges. Their reliance on subscriptions, manual quote-to-cash processes, and legacy applications makes them prime candidates for a major tech refresh. Here's what SaaS providers should look for in a financial solution:
1. Support for the transition to new revenue recognition guidance
Before the end of the decade, ASC 606 and IFRS 15 will take effect for public and private companies. These new rules replace the industry-specific guidance of U.S. GAAP with a fresh revenue recognition process that is much more focused on individual contracts. For SaaS vendors, the change introduces many complications, including ones affecting contracts that start under the old rules but expire under the new ones.
Cloud accounting software like Intacct helps SaaS teams streamline their processes for the updated standards. They can overhaul how they handle revenue reallocation and expense amortization. Plus, they can ease through the transition by getting side-by-side reporting, under both the old and new rules, on their books.
Manual revenue recognition processes are very time-consuming.
2. Better insight into key SaaS metrics
SaaS firms have to track a variety of key performance indicators, ranging from customer churn to profit margins. Unfortunately, this tracking is often done through Excel-based processes, which are slow and error-prone. As such, overall insight is limited.
"SaaS firms have to track a variety of KPIs, ranging from customer churn to profit margins."
In contrast, Intacct allows data to be viewed from an unlimited number of dimensions (such as employee, project, product, etc.) and can combine statistical data from a customer relationship management platform with financial data. With better monitoring of KPIs, SaaS vendors can make superior decisions about how to respond to business trends and retain customers.
3. Automation and consolidation of core financial processes
It is easy for SaaS accountants to fall into the trap of creating a lot of duplicate entries and then having to hire additional staff to deal with the resulting sprawl. Manual workflows lead to many such delays, draining energy from teams and distracting them from other projects.
Cloud financial software offers a different way forward. It can automatically trigger invoicing and revenue recognition after a sale, integrate with tools such as Salesforce for CRM, and supply sales teams with up-to-date information about customer accounts. The resulting efficiency can improve customer service and boost profitability.
It is easy to implement Intacct with the help of an experienced partner such as Arxis. With years of experience in the SaaS realm, Arxis can help you set up and maintain an accounting solution that addresses all of the biggest challenges that cloud vendors will face in the years ahead.