Calculating The Value Of Revenue In A Saas Company

Posted by xcelbusiness under Raising Capital
From http://tweakyourbiz.com 191 days ago

Every company’s CEO thinks they know what their sales revenue figure is. SaaS revenue is simple to work out, but it is different to what you might expect.

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Written by Warren Rutherford
191 days ago

Helen - this review if great. Thanks. Description of the accountancy reasons, particularly for valuation purposes is very helpful. While not an SaaS service, when I provide yearly coaching or business planning service that is paid in full in advance, it gets allocated the same way by my accountant, but I understand better now the "why."

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Written by xcelbusiness
191 days ago

You are spot on Warren, the Deferred Revenue principle applies to any business where you get paid in advance for a period of time, not just SaaS companies.

For example, if you belonged to a Business Coaches Association, and paid them a membership fee for a year, that Association would have to apply the Deferred Revenue principle to your membership.

I'm delighted that you found the post useful Warren.

~ Helen

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Written by Sian Phillips
191 days ago

Brilliant post Helen. Just a question that I had a discussion about recently - would you still use the Deferred Revenue principal if the subscription paid is non-refundable?

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Written by xcelbusiness
191 days ago

I've been thinking about this - I think the answer if yes, Deferred Revenue principle will always apply. The sale itself and the receipt of cash are two separate transactions. Let's imagine that you paid a subscription for a year in advance to ABC SaaS. After 3 months, ABC goes into liquidation, now you have only received 3 months of service but paid for 12. You would have a claim against the company's liquidator for non delivery of service for 9 months. The company should have provided for this in the Balance Sheet in the Deferred Revenue account.

As a customer, it is not advisable to sign such an agreement.If ABC SaaS company provided poor service you would want to have some recourse.

What a great question Sian! Thanks :)

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Warren J. Rutherford

Warren is a management and executive coach, Director of Coaching Programs for Innermetrix, a One Page Business Plan consultant, and has a dynamic manager as coach …