If you manage a business with a cloud-first strategy, you will have experienced the benefits of cloud computing. Cloud systems provide the elastic resources you need while reducing your total cost of ownership.
Managing a business in the cloud should be done from a functional point of view. With the evolution of technology, cloud accounting software has made that easy.
The impact that SaaS accounting (software as a service) has made is noticeable across various industries. But what is SaaS accounting, and how is it beneficial for the construction industry? Understanding how SaaS accounting is different from a legacy, or on-premise, accounting system is the first step.
We’ll look at why SaaS accounting is valuable along with the differences between it and traditional accounting practices.
What Is SaaS Accounting? Â
In short, SaaS accounting is the analyzing, documenting, and interpreting of financial data. Accounting for a SaaS business can be considered complex. This is why most businesses with a SaaS business model use cloud accounting software.
Without it, SaaS-based companies would not have an easy way to manage their financial reports or statements.
There are two primary accounting methods that companies can use. The first method is accrual accounting and the second method is cash-basis accounting. The most significant difference between the two is when revenue from sales gets recorded in the income statements.
With SaaS accounting, the accrual method works like this: the business will record any revenue as earned, no matter when the cash for the sale is received. This method also records expenses when a contract is signed, not when the expenses are incurred.
Some businesses find this model beneficial. This is because it allows for better revenue and expense forecasting. Yet, there are some companies who find this method more complicated.
Especially when comparing it to cash-basis accounting, SaaS businesses in high growth periods can find accrual accounting more helpful.
For SaaS businesses, the best use of accrued accounting would be if the project is long-term. Also, accrual accounting works best if the product has add-ons or if you bill one-time charges.
These charges can include the customer set-up process. Or they can be for customizations or migrating software on their systems. Accrued accounting can factor in the cost of all these situations.
The other model for SaaS accounting is cash-basis accounting. This accounting method records revenue and expenses only after a business receives a payment. The companies that leverage cash-basis accounting typically have smaller inventories or traditional pricing models.
Since revenue and expenses are only recorded when paid, this means accounts payable and accounts receivable are not accounted for in cash-basis accounting.
How Does SaaS Accounting Differ From Traditional Accounting? Â
There are a few ways that SaaS accounting differs from traditional accounting. For starters, cloud accounting software offers more collaboration and flexibility for a business.
SaaS accounting is cloud accounting software hosted by a service provider via a web-based application. SaaS accounting allows users to securely access the software through a mobile device or PC. Business personnel can access real-time data through the use of cloud accounting software.
This is vital for insightful decision-making that can be useful and done quickly. SaaS accounting can also offer mobile collaboration. This allows teams to handle complex accounting processes on the go, no matter where they are, as long as they have an internet connection.
SaaS accounting has the same functionality as traditional accounting. But using cloud software instead allows the accounting functions to be done on a remote server over the internet. No longer will businesses be required to download robust applications. They can work from anywhere instead of on office computers.
SaaS accounting also differs in its models to calculate revenue and cash flow. For example, in a SaaS business, most companies focus on two types of revenue.
One of which is MRR or monthly recurring revenue. The other is ARR, annual recurring revenue. Traditional accounting doesn’t tend to account for revenue in that way.
It looks for cash flow and one-time payments. This is less complex than dealing with recurring payments like a SaaS business model.
Additionally, SaaS accounting looks at upgrades and downgrades. It also looks at any add-on services in the computing process.
What Are Other Important Aspects of SaaS Accounting? Â
There are a few other aspects to SaaS accounting software that are important to understand.  As you learned before, SaaS accounting has parameters in place to determine the period in which revenue is recognized.
This criterion is set by the Security Exchange Commission or SAB 101. Contracts have to meet specific criteria to be recognized as revenue. The great thing about accounting software is that it makes it easy to stay in compliance.
Knowing what the SEC expects and how revenue can be classified as deferred or unearned is essential. When your customers pay for the product, your business provides upfront this revenue has a different label. If you haven’t delivered on the service, that is considered deferred revenue.
This can be bad if you recognize deferred revenue before your business has fulfilled its contractual obligations. The reason being it can cause you to have inaccurate growth forecasts. This can create unexpected liabilities.
Using the right cloud accounting software can avoid business liabilities like this.
Benefits of SaaS Accounting Â
The biggest benefit of using SaaS accounting is having control over your company’s software. It can help reduce expenses related to support and aid against software pirating.
SaaS accounting also can grow with your business while being a cost-effective solution. Many businesses enjoy the ease of use that SaaS accounting offers. This is because you don’t have to install or run applications on a desktop computer. Updates are automatically installed and you don’t have a server to maintain.
Another benefit of using SaaS accounting is it saves time. Cloud accounting software can process data faster than manual systems while supporting faster data entry. You can easily create purchase orders and invoices and handle payroll quickly and accurately.
What is Sage Intacct Construction and is it SaaS Accounting? Â
A leading SaaS accounting ERP is Sage Intacct Construction. Simply put, Sage Intacct Construction is a cloud ERP built for the construction industry.
Construction companies who leverage Sage Intacct can convert financial data into easy-to-analyze financial reports, and more, all the while it streamlines processes like accounts payable and accounts receivable.
Your Business Deserves the Best SaaS Accounting Tool Â
Having the right cloud accounting software can help your business improve processes. From billing, invoicing, to taxes and managing critical financial data, processes can be automated with the right cloud solution.
Now that you understand the possibilities of a SaaS accounting solution, get an in-depth look into Sage Intacct Construction for free in Bangert User Group.