Do your subscriptions diffuse the insight into results and cashflow?

SAAS companies sell their services and software by subscriptions. The challenge is to maintain an overview of the result and cash flow. It is crucial which choice is made when booking these subscriptions. In general, the SME company has the best financial feeling when booking the subscription directly to the P&L.

However, from an accounting perspective, it is better to divide the subscription provisionally over the period to which the subscription relates. This way you get a better view of your results at monthly level, because your services are spread over the entire year. The disadvantage of this, however, is that the average SME entrepreneur completely loses track of the financial progress of his business operations. This method of accounting does not give the entrepreneur any direct insight into the commercial growth of the company and, moreover, the presentation of the P&L says absolutely nothing about the cashflow development.

For SAAS companies, cashflow fluctuations are strongly influenced by growth in combination with the composition of the subscriptions. The difficult thing is that this cannot be read from the P&L account. This is because an annual subscription of, for example, €12,000 is spread over 12 months in the P&L, while the cashflow only comes in at one time. This makes it quite a job to maintain an overview of both your profitability and your cash flow. Especially if your company is growing and you have to deal with an increasing number of:

  • subscription types (monthly, quarterly and annual subscriptions)
  • billing dates;
  • customers with different payment behavior

For this reason, we see many SAAS companies in SMEs, who have made a ‘transitory’ attempt, returning to the model of directly booking the invoiced turnover. Simply because this provides the most insight into the commercial progress of the company from a commercial perspective. Forecasting turnover with your sales team is also done on the basis of the expected invoicing for the coming month and not on the basis of the monthly calculation on an annual basis. This is where the paths separate between the commercially minded people and the financials within a company :).

With the new Subscriptions module, CashController has come up with the ultimate solution for this, presenting the results of both the commercial and financial methods. This automatically connects to the most current subscription file and then calculates it in both the turnover and cashflow forecast. And that saves a lot of time compared to spreadsheets. The user can see the different outcomes of both the direct and the transitory method. By being able to switch, it becomes immediately visible what the difference means for the P&L account.

Method

In the ‘Budget input’ section, the Subscriptions module offers a new option to enter (manually) or read (online connection) your current subscriptions containing all data needed to automate P&L and cashflow planning.

Invoer begroting

In this section you now have access to a new tab ‘Enter subscriptions’, with which you can enter or read the relevant subscriptions at customer level.

You then have the option to enter one or more subscriptions per customer, as in the example below:

Ingevoerde abonnementen

You enter all specifications at customer level that are important for the automated calculation of both your P&L and cashflow forecast:

  • Subscription name
  • Subscription amount
  • Next billing date (Start date)
  • Frequency (per month, per quarter, per year)

After which the consequence for the budget is included in the overview. Moreover, you have the option to automate the calculation of the turnover budget based on the given data. This calculation can be done on a monthly or daily basis:

Overzicht transitorische berekening

It is of course possible to read your subscription file automatically. For example, from a predefined Excel or .xml format. In addition, we are developing more and more options to automatically read this from the accounting (if the accounting offers options for this).

The importance of transitory calculations

From a financial perspective, it is important to be able to indicate whether the subscriptions should be charged to the P&L budget on a transitional basis (this of course does not have to be the case). This allows you to make an automatic translation from your subscription registration to your budget (see below), so that you can first assess whether this calculation is satisfactory (before you finalize it):

Instelling transitorische berekening

You can also indicate whether this accrual calculation should be made on a monthly or daily basis.

Output in Cashflow Dashboard

In the Cashflow Dashboard, the subscriptions are now taken from the ‘Budget input/subscription input’ and the cashflow consequences are automatically calculated in the forecast section and therefore presented in the yellow columns.

Cashflow Dashboard met abonnementen

All entered specifications for all subscriptions and customers (such as payment behavior) have been calculated so that they fit into our weekly cashflowplanning.

Output in Dashboard Management reporting

In the monthly budget and actual figures, the turnover of the subscriptions is shown in a separate section, so that the development of the subscription turnover can also be clearly monitored here.

Dashboard managementrapportage met abonnementen

Conclusion

With CashController’s Subscriptions module, it is now also easy for SAAS companies to keep track of both profit and cash flow.