Revenue recognition is a make-or-break process for SaaS companies. 

Flawed revenue recognition distorts financial reporting, metrics, valuations, and investor perceptions. Yet despite these risks, the SaaS CFO’s 2024 Finance and Ops Survey alarmingly found that 39% of SaaS companies still use spreadsheets for revenue recognition

With so much at stake, SaaS companies must ensure their monthly recurring revenue schedules and methodologies are bulletproof. Here’s how to avoid falling victim to an overreliance on spreadsheets for rev rec and what to do about it.

The Risks of Using Spreadsheets for Revenue Recognition

Every finance and accounting professional worth their salt knows their way around a spreadsheet. They can be used to build forecasting models, cap tables, P&Ls–virtually everything you’d ever need to manage a business’s cash flow.

But what happens when a business introduces recurring revenue, hybrid-pricing models, and accrual-based accounting methods? If you have plans to scale your SaaS business in hopes of an eventual exit or IPO, but you’re still using spreadsheets to account for these financial complexities, you might as well flip a coin to determine whether or not your business stays afloat. Dramatics aside, relying on spreadsheets to manage a $1M ARR SaaS business can quickly lead to non-compliance, a loss of funding, and a lower exit valuation if you’re not careful. 

Here are a few of the other risks that come with using spreadsheets at scale.

Lack of Robustness and Detail 

Spreadsheets lack the flexibility and rigorous logic to accurately account for complex recurring revenue, hybrid pricing models, complex sales-negotiated contracts, and revenue share models. All of these factors make it incredibly difficult to manually track a SaaS company’s monthly cash flow. 

Even if you’re able to keep your company’s financials under control in the early stages of your business, your problems will only start to snowball as auditors and investors ask for historical records of your financial statements later on (and they better be accurate if you want to stay funded). 

Prone to Manual Human Error 

The manual nature of spreadsheets leaves them vulnerable to accidental human data entry and formula errors that can quickly spiral out of control. A minor mistake can easily distort your records of MRR, deferred balances, revenue recognition timing, and other critical financial reports.

What’s worse is that many companies typically only have one or two employees who understand what is inside these large spreadsheets and how to operate them. Leaving the institutional knowledge of your company’s financials in the hands of one or two people could have major repercussions later on. Instead, your best bet is to invest in a point solution that is purpose-built to manage revenue recognition for complex subscription-based businesses.

Difficulty with Auditability & Documentation 

Many auditors will refuse to rely on spreadsheet-based revenue recognition processes given the lack of detail, transparency, controls, and documentation inherent to them. Spreadsheets make it painfully difficult to track sources, assumptions, interdependent calculations, and changes over time. Auditors require end-to-end clarity into revenue recognition logic with guard rails against inadvertent errors.

Additionally, spreadsheets nurture disorder without rigorous change controls. Imagine an auditor combing through a tangled, complex spreadsheet months or years after its initial creation and trying to retrace steps. With poor version histories, cell-level details, untraceable precedents, and limited notes, unraveling another person’s spreadsheet logic is virtually impossible.

Ineffective Reporting and Analytics 

Spreadsheets often sync poorly with other systems and provide limited canned or dynamic reporting on revenue recognition activities, schedules, and trends. Copying and pasting data between spreadsheets and connected systems like billing, ERPs, and data warehouses also opens the door to errors through manual data manipulation. Even when spreadsheets are technically integrated, they rarely trigger automatic, real-time data exchanges.

Additionally, the rigid structure of spreadsheets makes dynamic reporting around revenue highly manual. For example, easily pivoting a revenue report to show new views– like revenue by product line, contract type, global region, or customer tier– typically requires tedious spreadsheet surgery. And most calculation-heavy spreadsheets choke when more than 2-3 basic reporting filters are applied.

To maintain visibility, financial planning requires slicing and dicing revenue recognition from many perspectives. However, trying to infuse granular reporting across key dimensions will quickly overwhelm most spreadsheets. 

Rather than roll the dice, SaaS finance teams should consider implementing purpose-built revenue recognition software that’s capable of managing monthly recurring revenue schedules, automating revenue recognition, ensuring compliance, and providing air-tight audit trails. The bottom line– your revenue recognition must be bulletproof.

Spreadsheets Are Not Built to Handle Complex Rev Rec Scenarios

In addition to human errors and poor reporting, spreadsheets can’t handle many of the revenue recognition complexities that commonly show up in modern SaaS businesses. From usage-based pricing models to sales-negotiated contracts, spreadsheets lack the dynamic modeling capabilities required for absolute accuracy. 

Here are two examples of high-risk edge cases that spreadsheets fail to properly handle.

Scenario 1: Usage-Based Pricing Models

Many SaaS companies offer usage-based pricing models alongside or instead of subscription fees. 

For example, customers may be charged per API call, compute hours consumed, data processed, seats accessed per month, etc. Tracking and properly recognizing revenue across these different usage-pricing variables requires complex logic that no spreadsheet can efficiently handle.

Scenario 2: Non-Standard Customer Contracts

SaaS companies often negotiate custom contracts with large enterprise customers that involve discounted future rates, prepaid amounts, tiered pricing rates as usage scales, revenue share components, and more. Attempting to model these multi-year non-standard arrangements manually becomes an unmanageable mess in basic spreadsheets.

In short, the variability of modern SaaS pricing and deal structures leads to intricacies that spreadsheets just weren’t designed for.

Regulatory changes that spreadsheets struggle with

If trying to force-fit a spreadsheet into a rev rec solution wasn’t difficult enough, SaaS finance leaders also have to take updated accounting standards and increased regulatory scrutiny into account. Non-compliance just isn’t an option if you want to successfully scale a business, and spreadsheets don’t offer that compliance safety net.

For example, the Financial Accounting Standards Board (FASB) is currently reviewing accounting standards for vendor-specific objective evidence (VSOE) and implied PCS in cloud computing contracts. Defining and separating revenue components from bundled SaaS/PCS contracts under new guidelines involves intricacies that would be manually intensive–if not impossible–in basic spreadsheets.

Additionally, global regulators are pressing for more disclosures and financial details tied to revenue recognition methodologies. Capturing, documenting, and reporting on elements like performance obligations, contract assets/liabilities, and disaggregated revenue data introduces a significant compliance burden that spreadsheets are too limited to manage.

Why Revenue Recognition Software is Necessary for SaaS Companies

You don’t need to invest in an ERP right off the bat if you’re facing difficulties using spreadsheets for rev rec. So what’s the third option?

Well, according to the 2024 Finance and Ops Survey, most of the 535 SaaS participants currently prefer stitching together targeted point solutions instead of using an all-in-one ERP, especially in the early stages. More specifically, 57% stated they prefer point solutions and are comfortable with multiple solutions integrated together, while only 24% preferred to limit the number of solutions through an ERP system.

This is why we recommend that SaaS companies should implement a point solution that is purpose-built to automate and manage their complex revenue recognition scenarios. Here are just a few of the key features that revenue recognition software provides:

Automated MRR Schedule Management: Systematically automate the tracking, management, and revenue recognition tied to monthly recurring revenue subscription schedules.

Sophisticated Revenue Modeling: Handle even intricate deferred revenue, prepaid contracts, revenue shares, milestones, and custom revenue recognition rules with flexibility that no spreadsheet can match.

Compliance and Standards: Maintain compliance with accounting standards like ASC 606 and IFRS 15 automatically.

Reporting and Analytics: Offer pre-configured and ad hoc reporting on revenue recognition activities, trends, and drivers across specific product lines, customer cohorts, subscriptions, and other dimensions.

This level of automation, flexibility, and insight is impossible in makeshift spreadsheets. On the other hand, purpose-built rev rec software also provides the scalability, controls, and auditability that are crucial for sustainable business growth.

Streamline Your Rev Rec Process with Maxio

In summary, relying on decentralized spreadsheets for core revenue recognition is reckless at best. At its worst, it could lead to a loss of funding, a failed audit, or negatively impact your valuation upon exit. Rather than ignoring these risks, SaaS finance leaders must implement integrated revenue recognition systems to ensure financial integrity across their businesses.

Want to maintain financial integrity and achieve sustainable growth? Schedule a demo to learn how Maxio is helping countless SaaS companies retire their spreadsheets for good so they can focus on scaling.

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Revenue Recognition Policy Template

Auditors require lots of documentation to ensure accuracy. Having a solid revenue recognition policy in place is the first step toward ensuring compliance.

Summer 2023 Product Webinar

Are you Enterprise Ready? You Should Be.

On this webinar, we shared how Maxio’s new (and some not-so-new) features support your FinOps needs today while preparing your for tomorrow.

This webinar has already aired, but you can check out the highlights below!

Summer 2023 Feature Release

On our recent product release webinar, we discussed what it means to be “enterprise ready,” and how Maxio’s newest features will support your FinOps needs today while preparing you for tomorrow.

We showcased several new features, including:

Our Chief Product Officer, Barrow Hamilton, also teased some of our upcoming product releases and answered attendees’ questions about current and future Maxio features.

Graphic image_Maxio Rollforward Report

Multi-entity reporting

Multi-site reporting has come to two of our most popular reports, Advanced Subscription Momentum and A/R Aging. This functionality is building on the work we released last year, which allowed reporting currency conversion as well as foreign exchange segmentation on some of your favorite metrics.

FX gain/loss

In addition to the cumulative translation adjustment segmentation available in our Advanced Revenue Summary report, our customers need to be able to segment out noise related to FX movements from their data.

We’re pleased to announce segmentation of FX gain/loss in our payment summary report for unrealized and realized FX gain/loss. And this allows users to see their true economic movement versus what may be chalked up to macro changes in the FX market, while also adhering to ASC-830 for GAAP purposes.

Enhanced Advanced Subscription Momentum Report

Net dollar retention is a critical SaaS metric for those in high growth mode, as segmenting which customers you’re retaining in your growth numbers gives a more appropriate picture of your metrics. So, we’ve added a new section for net dollar retention to the Advanced Subscription Momentum report.

This update allows your board of directors and investors to see granular movements.

Reporting upgrades

You can now generate reports up to 80% faster. Multi-select fields allow you to enjoy bulk selections for report detail sections. And freeze panes offer an Excel-like user experience, allowing you to freeze the first column or row in each report for better readability.

We’ve increased the detail columns on both the DSO and A/R aging reports, which allows a much more granular view for any of your dunning efforts, net dollar attention, as well as the segmentation of FX gain/loss and CTA.

Advanced Revenue Summary Report Builder

Milestone-based projects and Salesforce projects triggers

Milestones are configurable markers that correlate with specified contract events in Maxio. When marked complete, milestones fire actions that trigger required invoicing, revenue recognition, and subscription dates.

Projects track milestone-based billing and revenue recognition events triggered by actual milestones achieved during a project or an implementation. This keeps implementations from falling through the cracks, and keeps you from having to manually review the contract once the project is complete.

Additionally, automated Salesforce project triggers allow you to manage projects in either Salesforce or Maxio. Previously, team managers had to connect with the finance team to update projects. Now they can do it themselves directly within Salesforce. Tracking projects, notifying the finance team, and following up, are now done one step—right from where you work best.

NetSuite integration enhancements

Maxio’s NetSuite integration is a bi-directional, highly customizable solution for growing businesses. It ensures our customers have critical financial information when and where they need it.

We’ve made a number of improvements to this integration, including the ability to send items and deposits to NetSuite, automatically add currencies to NetSuite customer records, and several custom mapping additions.

What’s next?

We’re continuously developing Maxio to better meet the needs of growing SaaS businesses. Here’s a sneak peak of our product roadmap.

While you’re always free to process payments through one of our payment partners, our recent release of Maxio Payments allows you to further automate your order-to-cash process by integrating reconciliation directly with all the great reports Maxio has to offer. Process payments in the same platform that you use to invoice, recognize revenue, report on financial data, and sync to your general ledger.

Maxio Payments is available to customers now, and we are continuing to enhance this capability in 2023.

Maxio’s developer tools save you time by enabling your engineers to quickly and easily integrate your web applications with our platform. Improving these tools continues to be a big focus for us moving into 2023 as we roll out additional SDKs to make your customers’ billing experience even better.

Part of the value of Maxio is the ability to push Maxio data into other critical business systems (and vice versa). In 2023, we’ll continue to make Maxio data more actionable and accessible, including the exploration of integrations with Business Intelligence and data visualization tools.

Finally, we’re continuing to enhance the breadth of integrations we currently offer.

In addition to the previously-mentioned updates to our Salesforce and NetSuite integrations, we are enhancing our integrations with QuickBooks, Xero, HubSpot, and more to help facilitate the business processes you need to work seamlessly between Maxio and your other critical applications.

Get a customized demo to see how Maxio will help you:

  • Streamline your order-to-cash process
  • Reduce churn and stop revenue leakage
  • Get cash in the door faster
  • Drive strategic decisions with real-time SaaS metrics and analytics

A grid of fall G2 badges: Leader, Leader Small Business, Leader Mid-Market, High Performer Europe, High Performer Mid-Market EMEA

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Notice any surprises on your tax bill this year? For many SaaS companies, their R&D costs were significantly greater than in previous years—and it’s all because of new legislation that slipped under most peoples’ noses. Until now.

What is this new tax legislation?

According to Sec. 174 Amortization of Research and Experimental Expenditures, taxpayers are required to capitalize and amortize research and experimental (R&E) expenses over five or 15 years for tax years beginning in 2022 or later.

Why is this a big deal?

The average SaaS company spends 25% of its revenue on software development. The example Todd Gardner, Managing Director of SaaS Advisors, shares below is based on SaaS Capital survey data of over 1,000 companies. As a result of this new legislation, the typical tax bill for a five-million-dollar SaaS company could increase eightfold. That’s no small number.

Old tax law vs new tax law

What are the immediate implications of Sec. 174?

To better understand the ripple effects of this new legislation, we sat down with Tyler Kem, Co-Founder & President of Strike Tax Advisory—an advisory firm that’s solely dedicated to helping businesses optimize their R&D tax credits.

According to Tyler, “The way [Congress] wrote the code is that, after five years, the benefits would offset themselves. But here in the first couple of years, it’s going to have a significant impact on [SaaS] businesses by artificially creating taxable income out of thin air. Now, these businesses are really going to have to reconsider the onshore/offshore model as a result. Typically, it’s been very favorable to go offshore due to lower development costs, but now SaaS companies are only going to be able to deduct 1/15 of those costs in the current year on their tax return.”

This has a significant impact on SaaS companies that are consistently dealing with net operating losses—especially if they thought they had more cash on hand than they actually do.

How are SaaS owners and operators responding to this new legislation?

According to Tyler Kem, here are the most common actions SaaS owners and operators are taking as a result of this new legislation.

Extending their tax deadline: “Given the tax deadline, a lot more businesses are working to extend their tax return in hopes that Congress will repeal something, push something out, extend the current expensing rules, etc.” says Tyler.

Reevaluating onshore vs. offshore dev teams: Now that the nature of R&D expenses has changed, there is potential that SaaS companies will start to reevaluate offshore development teams. For now, most SaaS leaders are still trying to wrap their heads around the long-lasting impact of this legislation in hopes that it will get repealed.

Pulling out credit lines or debt-financing: SaaS owners and operators who have been hit with this unexpected tax bill are now having to make quick decisions about their method of payment. With churn on the rise and funding rounds slowing down, many business leaders are turning to funding alternatives such as pulling out lines of credit or revenue-based financing.

Many aren’t sure what to do: Tyler Kem also adds that “the one really unique thing about the section 174 amortization rules is that CPAs never had to identify it before—it didn’t matter because you could always expense everything. For example, if you had to pay $100, you could write off $100 on your tax return. Now, you have to classify the expenses and determine ‘is it for research and experimental?’, ‘should it be deducted or should it be amortized?’, etc. It used to be that only the R&D consultants were looking at 174 expenses because they were the only ones trying to go in identify these documents.”

What are the best next steps for SaaS founders and leaders?

Before we dive into next steps, it’s important to note that the tax credit itself isn’t changing.

According to Tyler, “the way that we calculate the credit is not changing. It’s all about how you deduct those expenses on a tax return. The biggest impacts that we’re seeing are on businesses that are right around breakeven (between one to five million ARR) that are now potentially facing $500,000 to $700,000 R&D tax expenses.”

With many SaaS leaders staring down these new expenses, here are the best next steps to take to ensure you’re not footing the bill unnecessarily: 

1. Reach out to your CPA

Before taking any action, it’s best advised to reach out to your CPA and see if this change will impact your company. Todd Gardner recommends that you add up what you spend on your development team fully loaded with benefits, and then add 15% for other costs. Take that number and multiply it by .9, and that is the increase in your taxable income for 2022.

2. File for an extension

If you are impacted significantly, the most common advice is to file for an extension and hope that congress changes the law. The problem is that you will need to pay estimated taxes based on the current law. According to experts, extending and paying estimates based on the old tax code would almost certainly result in penalties and interest. Instead, you can apply to the IRS to pay your tax bill in installments which might be easier than getting a loan (if you can make the payments).

3. Identify previous tax credits and roll them forward

If you’re not claiming the R&D tax credit, it’s possible to go back and maximize your credits over the last couple of years and amend your prior tax returns. By rolling these credits forward, you can plan ahead for any surprise tax expenses in the future.

4. Reach out to an R&D tax credit advisor

If you’re working with a CPA that doesn’t have a background in calculating documents substantiating defending credits under audit, then there are risks in claiming the credit with that CPA. By working with a dedicated R&D consultant, you can maximize your available credits and significantly reduce your tax expense.

Minimizing your tax expenses and seeking alternative funding

If you’re determined to claim the R&D tax credit, working with a dedicated R&D tax consultancy is your best bet to maximize your credits and reduce your tax expenses.

However, this doesn’t guarantee that the state of cash in your business won’t take a hit. If you’re interested in bolstering your cash flow without raising a down round or seeking out investors, you may want to consider an alternative funding source like debt financing—this is why we’ve partnered with Todd Gardner, Managing Director of SaaS advisors, to build this Loan Analysis Calculator.

The calculator will help you see how different debt structures will impact your cash runway up to 36 months, and make accurate assumptions of how raising debt can help you fuel growth or breakeven in the future.

You can download it here.

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What happens if you don’t report on your financials correctly?

At best, you’ve created a ton of additional work for your finance and accounting teams. At worst, you lose the confidence of your board and investors, miss out on a funding round, or risk failing to meet GAAP compliance. Without the tools to ensure financial accuracy, you could easily find yourself in this situation—especially if you’re still using spreadsheets to pull journal entries manually.

In this article, we’ll show you how Maxio’s Advanced Revenue Summary report makes it easy to pull journal entry support and streamline your month-end close. “What does this have to do with my financial audit?” you might be wondering. Well, if you aren’t able to ensure accurate billings or pull accurate financials, it can lead to a nasty domino effect when audit time rolls around. 

This is what it could look like:

  1. Because of errors in your billing and financials, your journal entries are inaccurate which drags out your month-end close.
  2. In the event of an audit, the errors in your billing and financials make it near impossible to pull journal entry support in a timely manner
  3. You scrutinize your journal entries, but your auditor finds mistakes in your records anyways and you have to do a revenue restatement
  4. Your investors find out and devalue your company because your financial reporting is unreliable

This is definitely a worst-case scenario, but it’s a major possibility in SaaS where accrual accounting, multiple pricing methods, and hybrid GTM models make accounting scenarios complex.

So what’s the solution? We sat down with Maxio’s Manager of Accounting, Lindsey Arnold, to see how she uses Maxio to:

  • Ensure accurate financials, always
  • Avoid scrambling through old journal entries at the last minute
  • Reduce the workload required from her broader finance/accounting team

Here’s what her process looks like, step-by-step.

Pulling journal entry support in Maxio

Pulling journal entry support in Maxio is as simple as clicking a few buttons, and it’s made possible through the Advanced Revenue Summary report.

The Advanced Revenue Summary report provides summary invoice, revenue, deferred revenue, long-term deferred revenue, unbilled AR, and summary and detailed journal entries needed to book revenue, liabilities, and assets related to your subscriptions. The report also provides detailed drill-down capabilities.

Not to mention, because Maxio offers billing and invoicing directly from the platform, financial records are created automatically so they never fall ouof sync.

What are the advantages of this report vs. a spreadsheet?

Once you finalize the numbers in your monthly report, those numbers are locked, so you don’t run the risk of pulling incorrect data in the face of auditors. You also have the option of going in and segmenting your data and presenting it to auditors based on customer records, contracts, by month, or by line item. The ability to slice and dice data at a moment’s notice is invaluable during an external or internal financial audit.

How to pull journal entries in Maxio

1. Select the Advanced Revenue Summary report

First, click on the reports tab in the left-hand sidebar and locate the report under ‘Report Home’ or ‘Report List’. The Advanced Revenue Summary report will be featured in a drop down alongside Maxio’s other financial reports.

Advanced Revenue Summary report — step one

2. Run the revenue report 

Advanced Revenue Summary report — step two

3. Export to the desired file type

Advanced Revenue Summary report — step three

What are the main features of Maxio’s Advanced Revenue Report?

Expand/collapse rows

All rows in the invoicing and revenue summary can be expanded or collapsed to quickly see additional details based on the income account configured for each item.


Collapsed table


Expanded table

Drillable reports

Select a row header, income account, or individual month to quickly drill into additional detail.

Drill down reporting

Item mappings

If your GL system is connected to the Maxio Platform, we perform an additional check on your item settings. The advanced revenue summary report automatically maps items in your Maxio account to items in your general ledger, so you know revenue is being booked in the correct place in your chart of accounts.

Item mappings

Maxio’s invoicing and revenue summary

Maxio’s Advanced Revenue Summary provides you with a financial summary detailing the following:

Invoices and revenue summary

What’s the cost/benefit of using Maxio vs. a spreadsheet?

Accurate financials, always

As a former auditor, Accounting Manager, Lindsey Arnold, has had her fair share of poring over inaccurate financial statements as a result of spreadsheet usage.

“1,000 different things can go wrong when prepping for a financial audit. One of those is trying to answer questions about your financials from months ago. Without a revenue reporting tool, you could have no idea what the answer is—which is not what you want during an audit. With Maxio, as soon as you make an entry, your books are locked and nothing is going to change. It’s easy to go back and pull journal entries at a moment’s notice.”

— Lindsey Arnold, Accounting Manager at Maxio

Tell a story about financial performance

Not only does Maxio ensure accurate financials, but it makes it easier to tell a story about why revenue is trending a certain way in your business.

“For example, if an auditor were to ask why February revenue was a little lower than all the other months, it’s very easy to just pull the [Advanced Revenue Summary] report and say, well, here you go. The ability to drill down on those journal entries is super important. That’s not something that a lot of people were able to do with spreadsheets.”

— Lindsey Arnold, Accounting Manager at Maxio

Complete your financial audit as a team of one

It truly takes a village to execute all the necessary steps to complete a financial audit—though this is only true if you’re still using spreadsheets.

“If your audit is going poorly, the entire finance team may need to get involved. If revenues aren’t adding up, your audit could get rolled up to the senior leadership level and cause a scramble to get your books in order. Not only does this create the risk of not meeting GAAP standards, but you’re taking time away from strategic work that could be used elsewhere. With Maxio, I was able to complete most of our audit prep entirely on my own, and hand over other tasks to my co-workers when necessary.”

— Lindsey Arnold, Accounting Manager at Maxio

Ace your audit in record time with Maxio

From ease of access to specific records, accuracy of information, and the ability to share Maxio reports with auditors, Maxio has helped countless B2B SaaS companies prepare for financial audits. 

Need to prep for a last-minute request from auditors or investors? Pull audit samples quickly with our waterfall reports for invoicing, revenue, and deferred revenue that can be generated at both the customer and contract level. Also, take advantage of Maxio’s Dropbox integration, where you can add a customer’s signed contract directly in Maxio to help you stay organized and find your files with ease.

Schedule a demo with our team to see how Maxio can cut your audit prep in half.

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SaaS financial audits. There’s nothing else like it in a typical SaaS business. Imagine if your sales team had to go through last year’s opportunities with a fine-toothed comb and prove they followed the (often quite fluid) sales process with the expectation of zero inaccuracies or oversights. 

Now, imagine they had to do that while still closing this year’s deals and working on new opportunities in the pipeline. It’d be madness, no? 

Well, that’s what FinOps professionals endure every single year. 

So what’s the deal? Should you just suffer in silence during annual audits and resign to the fact that you’re going to be working 12 hour days for a few months? 

Turns out, there are some processes and technologies that you can implement to make your next financial audit run smoother. 

For more tips on how to simplify your SaaS financial audit, read this article from Tim McCormick, former CEO of Maxio (formerly SaaSOptics). 

SaaS Financial Audit Structure 

If you’re headed into a year one audit, it’s helpful to understand exactly how financial audits work. Financial audits typically include the following components: 

  1. Pre-audit prep work 
  2. Random Selections 
  3. Field Work 

We’ll dive into each to give you a better idea of what to expect. 

Pre-Audit Prep Work 

Preparing for an upcoming audit is arguably the most important part. Ideally, your team will have strict processes and controls in place year-round that will make the audit season less painful. 

A good place to start prepping for an audit is to have solid revenue and expense recognition policies in place.  

A revenue recognition policy is a single document that details your processes and methodologies used to recognize revenue in your business. 

Your rev rec policy is where you establish the rules that govern the consistent application of the ASC-606 framework at your company.

Likewise, an expense recognition policy surmises your processes/methodologies for recognizing prepaid expenses and fixed assets in your business. 

A solid revenue recognition policy will contain the following components: 

  1. Data (Products you sold and how you recognize revenue)
  2. Guidance (How your company complies with GAAP and IFRS-15)
  3. Process (What does it look like on a day-to-day basis)

An important thing to note about revenue recognition policies is that they aren’t static. As your business and regulatory requirements evolve, you’ll need to update your policy to reflect those changes. 

For an audit, the most important thing is being able to point back to your documentation and explain how your day-to-day business operations followed your pre-defined policies. 

Not sure where to begin with your policy? Get our free revenue recognition policy template today for help getting started. 

Random Selections

Random selections are just what they sound like. Your auditors will request a random sampling of your customer data for review. 

Your auditor will want to see all relevant data pertaining to that customer including the contract, invoices, revenue schedule, deferred revenue, etc for the previous fiscal year. 

The more easily you’re able to pull this data, the faster your audit will go. 

Field Work 

In a pre-COVID world, field work would entail your auditors coming on-site to review random selections and interview employees about the controls and processes your team has in place. 

These days, much of this work is conducted over Zoom or over the phone, so it’s even more important that your documentation is buttoned up and your team is on the same page. 

During this time, your auditors will review random selections to ensure they match topline revenue and deferred revenue figures and inquire about things like fraud prevention, risk exposure, etc. 

Where You Can Lose Time in a SaaS Financial Audit 

Audit timelines can span anywhere from a few weeks to a few months. While a speedy audit is preferred to a long, drawn-out one, the most important thing is accuracy and data integrity. If you can produce a clean audit quickly, that’s an ideal scenario.  

Typically, your auditors will charge a flat fee for the costs incurred from conducting the audit. However, if the auditors run into issues with data integrity and have to go back and forth with your team reconciling discrepancies, you will be subject to additional, out-of-scope billing, often by the hour. 

The following are some common occurrences that can prolong your audit:

You Can’t Find a Contract 

It seems simple, but something as basic as being able to produce a contract for a specific customer can prove very difficult if you don’t have the right systems and processes in place. 

Often, contract data lives in many different places. You may have the actual document in DocuSign or some other document management system, but you probably also have it in Salesforce or some other document repository. Or, sadly, possibly on a former employee’s old laptop.

When you’re relying on manual processes to keep track of your contracts, human error is bound to creep in. If your auditor requests to see a contract and you either can’t produce it or it does not match what’s reflected in your financial statements, you’re going to run into trouble. 

There Are Issues With Your Revenue Recognition Policy 

As mentioned above, a good revenue recognition policy will include data on products sold, guidance on how the company complies with GAAP/IFRS standards, and examples of what your process looks like on a day-to-day basis. 

A common mistake in crafting your revenue recognition policy is not providing specific examples for things heavily affected by ASC-606 such as the recognition of revenue from implementation and service fees. 

There are a host of other things that can create complex revenue recognition scenarios, such as mid-month start dates, opt-out clauses, changes to pricing and packaging, and commitments to deliver any non-standard products or services. 

An easy rule of thumb to follow: if it’s a scenario that arises in your business, however infrequently, it needs to be documented in your policy. 

There Are Inaccuracies in Your Data 

Inaccuracies can arise in your data in multiple ways, especially if your financial operations rely on manual processes and spreadsheets.

The most common type of inaccuracy will arise if your financial transactions don’t match your contracts. For example, you have a contract that reflects a $20,500 annual subscription fee, but it somehow got entered into the spreadsheet as $20,000. The reason your auditors inspect contracts is because that’s what both parties agreed to. They function as the guidepost regardless of what your spreadsheet says. 

The other inaccuracy that arises frequently is formula errors in your spreadsheet. One incorrect calculation can throw off your entire spreadsheet. In the case of deferred revenue, referencing one cell off from what you intended will wreak major havoc across your entire sheet, causing headaches for you and undermining your data integrity in the eyes of your auditors.

Maxio for SaaS Financial Audits  

Maxio offers out-of-the-box financial reporting that makes it easy for your team to access financial metrics in a matter of seconds. 

The following are a few reports and features within the Maxio platform that are helpful for financial audits. 

Advanced Revenue Summary 

The advanced revenue summary allows you to see recognizable revenue on a monthly basis. It also gives you the ability to drill down into different types of revenue, which is a common request that auditors will make. 

With the Advanced Revenue Summary report, you can differentiate between revenue types such as professional service and subscription revenue. You can also see past and future scheduled revenue by simply adjusting the report’s filters. 

You can also break out revenue by type as well as filter by specific contract numbers. In the instance of a customer with multiple contracts, you can combine those contracts and see a single scheduled revenue number at the customer level. 

Contract Details Report

The Contract Details report allows you to build out deferred revenue waterfalls and see Unbilled Accrued Revenue at specific points in time. Like the Advanced Revenue Summary report, it enables you to break down the data by Items sold, specific contract number, etc. 

In both reports, you’re able to report on GAAP revenue at a high level and in granular detail depending on the requests of your auditors.


RevenueBooks is an advanced workflow in the Maxio platform that allows users to re-allocate revenue across their contract population using flexible, fixed, and dynamic formulas.

RevenueBooks allows you to handle complex revenue recognition scenarios, and in the instance of a financial audit, it allows you to measure, manage, visualize, and compare any changes to your revenue treatment. For example, you can use it to see the changes between revenue treatment under ASC-605 and ASC-606 standards. 


The e-Invoicing feature within Maxio allows you to send invoices directly from the Maxio platform. Once an invoice is sent, the PDF is attached to the customer record within Maxio, making it effortless to go back and find a specific invoice without having to reference multiple systems. 

As mentioned above, not being able to produce a specific invoice or contract can slow down the audit process significantly. Having a single source of truth for all your financial data speeds up the process and makes it a lot less painful.

Order-to-Cash Integrations

In addition to e-Invoicing capabilities, Maxio connects to popular CRMs and General Ledgers to fully automate the order-to-cash process in your business. 

When connected, order data that is entered into your CRM can be automatically synced to Maxio where it’s converted into financial data. 

Our system will automatically generate invoices and revenue schedules for the contract once the order is synced. 

From there, you can invoice and collect cash directly from the platform, and Maxio will send the information needed to generate your journal entries to your GL. 

From an audit perspective, having all financial data based on actual transactions flowing through the platform greatly reduces the risk of error from manual data entry in spreadsheets. 

Financial Audits – Looking to the Future 

Financial audits are a reality for FinOps professionals everywhere. But they don’t have to be as painful or time-consuming as they once were. 

The problem with running into issues during a financial audit is that every issue encountered has a massively outsized effect on the business. 

You are still responsible for your day job when going through a financial audit. Running into issues during your audit means more time spent away from the day-to-day operations of the business, which leads to (you guessed it) mistakes and oversights that will come back to haunt you next audit season. 

SMaxio for financial audits–and really the overall management of financial operations in a SaaS business–is your best bet for achieving a clean financial audit in a reasonable amount of time. 

Want to learn how Maxio can help you with your next financial audit? Talk to a team member today.

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Chart of Accounts

SaaS Chart of Accounts Template

This sample Chart of Accounts allows your finance team to view, organize, and manage all your assets, liability, equity, revenue, and expense accounts in one place.

Download Template

For a proper SaaS P&L, you need a chart of accounts (COA)

Find out exactly where your business is making and spending money, so you can cut down on unnecessary expenses and put more money in your pocket.

This template will help you

  • Group your Chart of Accounts by functional area
  • Easily compare financial data between periods
  • Gain a common understanding of financial performance to share with investors
  • Test real data by facilitating a direct import into QuickBooks Online or Xero

Ready to achieve sustainable growth in today’s market?


Commission Policy Template

Like a revenue policy, a commission policy is a living document that helps you enforce the consistent application of FASB guidelines (specifically ASC 606).

Download the template

What’s inside?

This document functions as an internal control that will dictate how your company accounts for expenses related to acquiring and fulfilling contracts. It will serve as a point of reference during audits.

You’ll get:

  • A usable policy template to use as a framework for your own company’s commission policy
  • Specific guidance for each section and additional FASB resources
  • Additional considerations for writing each section based on our team’s wealth of experience


See for yourself how GAAP compliance has never been this easy

The internal audit is seldom talked about, yet undeniably essential to maintaining financial integrity in any SaaS company. It’s the independent voice that helps your organization understand risks and get assurance that your internal controls are working.

When you consider the work that goes into a single audit, it’s tempting to “save time” by painting your financial processes in broad strokes and ignoring the fine details. (This is especially true for early-stage SaaS companies that are solely focused on finding product/market fit and generating positive cash flow each month.)

Don’t fall into this trap.

The earlier you start building out an internal auditing function in your organization, the easier it will be to justify the numbers on your balance sheet when an external auditor starts running through your financials with a fine-tooth comb.

Here’s everything you need to get started with conducting regular internal financial audits in your SaaS business.

What is an internal audit?

An internal audit is the process of identifying flaws in your organization’s internal controls and financial processes, so they can be corrected prior to an external audit. This provides leadership with a safety net (i.e. risk management) from inaccurate financials during an external audit or during due diligence with potential investors.

To conduct an internal audit successfully, you’ll need to dig deep into your company’s financial situation. Probe accounting records. Review internal control policies, cash holdings, and other sensitive financial areas that would be subject to review by an external auditor.

Goals of an internal audit

Unlike external audits, internal audits don’t conclude with an audit report. It’s a preventative measure obtain evidence related to compliance with regulatory requirements provided by GAAP or IFRS. It’s not a pass/fail activity. The internal auditor is usually tasked with providing recommendations to improve and correct inefficiencies in an organization’s existing financial procedures.

SaaS audit financial structure

The structure of your internal audit is not bound to a specific set of laws or regulations, so there really are no “rules.” Here’s how we recommend SaaS businesses plan and perform an internal audit from start to finish.

1. Draft your auditing plan

First things first, create an audit schedule and communicate it to everyone involved. You can draft your own audit programs and tests, or you can use resources provided by the Institute of Internal Auditors (IIA), a professional association that advocates and promotes the importance of internal audits.

2. Review previous audits 

Next, you’ll want to review the results of any previous internal audits. This will make it easier to identify potential deficiencies or areas of concern in your company’s financial operations and internal controls. 

Pay special attention to any failures in following accounting principles and accounting standards. 

Startups tend to take shortcuts when it comes to compliance with the Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS). Compliant financial statements are not their primary focus, so they’re often inclined to use the cheapest accounting solution. But all companies—yes, even startups—should think long-term about their financial future and whether they should raise a funding round, continue to scale, or prepare to sell. Such strategic events generally require compliance with required standards, and having reliable reports ready when requested during due diligence is critical. 

3. Gather financial documents

Grab the financials documents that would be subject to an external review: signed customer contracts, addendums, SOWs, POs, vendor contracts, invoices, batch deposit support, bank statements, time entry reports tracking time for capitalized software, and percentage-of-complete revenue. 

4. Keep financial records up to date 

Without timely and reliable information, accounting records can become unreliable themselves, creating discrepancies in your company’s financial records. Your bookkeeping can be done manually, however, it’s not time-efficient and could leave your auditing procedure prone to human error.

Using financial operations software like Maxio enables you to sync data between your CRM and general ledger in real time, ensuring that all your financial records are readily available and up-to-date.

5. Review your accounting system

It’s finally time to start the auditing process! 

First, identify and review each element of your company’s accounting system, including individual T-accounts (debits and credits), journal entries, the general ledger, and current financial statements. Systematically work through the accounting system to ensure all necessary accounts are present, journal entries are posted to the general ledger in a timely manner, and your accounting system has the ability to support upcoming changes in the accounting standards like ASC-606 and ASC-842 (i.e. a forward-thinking accounting system).

Here’s a quick list of the features you should have at your disposal:

  • Automate basic tasks such as billings, sub-ledger to main ledger reconciliation, and running reports based on customized queries.
  • The option to set up standard protocols to prevent unauthorized transactions such as deleting records, or creating a duplicate journal entry.
  • A backup plan to safeguard financial records against server crashes, accidentally deleted files, etc.
  • Restrict access to specific modules so that only the appropriate people have access to the data they need. (For example, the sales team shouldn’t be able to prepare bank reconciliation or cut checks.)
  • Ability to handle recurring revenues, subscriptions, SOW, sales orders, products, services, and unexpected deals separately

6. Review your internal control policies

Do your internal controls provide adequate protection against instances of potential theft or fraud? Internal control policies typically include the separation of accounting duties between different employees, locked safes for holding pending bank deposits, and individual permissions for password-protected accounting software.

7. Compare internal and external records

After you’ve reviewed your internal control policies, you’ll need to compare your internal records of cash holdings, income, and expenses against external records, such as bank statements and tax records. Similarly, you can also compare your company’s stored external records against internal records.

8. Look at tax records

Analyze your company’s internal tax records and official tax returns. According to the IRS, you should hold onto records for at least three years, unless you filed a fraudulent return—in this case, you should hold onto your tax records indefinitely.

Browse through your company’s tax receipts from the IRS and compare them against records of tax liabilities and taxes paid in your company’s accounting records. You should also review the range of credits and deductions claimed on your most recent tax return, looking for discrepancies in your company’s financial reporting, such as inflated expense numbers.

Where can errors occur?

Internal audits are not regulated and are, therefore, more flexible. Without strict auditing procedures in place, the integrity of your audit can suffer. 

In lieu of strict laws or regulations, you’ll want to create your own set of auditing procedures for internal use so that your employees are holding each other accountable for the quality of your audit.

Accounting software can help fill in the gaps, reducing potential errors caused by playing loose and fast with your auditing procedures. If you want to conduct a successful audit, consistency is key. Adopting a FinOps tool that acts as a single source of truth for your financial records makes this much easier. Read our recent article, The Pros and Cons of Point Solutions of Billing and FinOps, to learn more about the benefits of investing in tools to support internal audits and other key accounting activities.

How do you measure the success of an internal audit?

At the end of your audit, you need to be able to answer the following questions:

  1. Are you managing various risks effectively (e.g. internal controls working properly, reduced risk of fraud, no discrepancies between internal and external financial records, etc.)
  2. Are you applying financial policies and procedures correctly to maintain compliance? (e.g. GAAP, IFRS, and ASC 606)
  3. How can you improve processes to reach your financial goals? (e.g. Accurate financial reporting, maintain a financials and metrics dashboard, eliminate manual processes by investing in a dedicated accounting system)

At the end of your audit, consider compiling an unofficial report of all your audit findings. Not only can you use it as a resource when planning future audits, but it also provides your company with an actionable list of “fixes” to your internal controls and financial processes before an external auditor enters the scene. 

Getting started with your next audit

Before you prepare for your next audit, all your financial records and accounts should be easily accessible in one place. We built this chart of accounts specifically for SaaS teams so you can view, organize, and manage all your asset, liability, equity, revenue, and expense accounts in one place.

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Policy Template

Revenue Recognition Policy Template

Auditors require lots of documentation to ensure accuracy. Having a solid revenue recognition policy in place is the first step toward ensuring compliance.

Download Template

Did you know that revenue recognition issues are the leading cause of financial misstatements?

That’s why we put together a comprehensive revenue recognition policy that you can download and adapt to your business.

Use this template to:

  • Identify your contracts, SSPs, and Performance Obligations
  • Provide guidance on the allocation of transaction prices
  • Provide guidance on how to recognize revenue

Ready to achieve sustainable growth in today’s market?

Board meetings, due diligence requests, month-end close, auditor requests—how many all-nighters have you endured to ensure your company is well represented? Too many. 

Our team has talked to thousands of SaaS finance professionals over the years, and we’ve seen three common challenges finance teams at SaaS companies face:

  1. Standing out to investors and passing due diligence
  2. Completing month-end-close efficiently
  3. Achieving a quick and clean audit

In our recent webinar, Stop Pulling All-Nighters: Avoid the scramble for due diligence audits and month-end close, we dove into each of these challenges and shared actionable advice you can use to avoid the spreadsheet scramble. In this recap, you’ll learn how to help your company stand out to investors while increasing efficiency and time savings in your day-to-day work. 

Are your eyes getting tired from scrolling? You can listen to the full webinar recording here.

Challenge #1: Getting funded

A thoroughly documented financial process is a big green flag that signals to investors that you are proactively working to track and manage your company’s growth. If you want to truly stand out to investors and raise your next round, you’ll need:

  1. Detailed and accurate financial reports 
  2. Real-time updated SaaS subscription metrics

Detailed and accurate financial reports

The ability to quickly pull financial reports is a huge competitive advantage when building relationships with potential VC partners. Not knowing your historical revenue and other key financial metrics can erode investor confidence in your company.

However, before you can start pulling detailed and accurate financial reports, Clayton Whitfield, co-founder of Maxio, recommends reviewing your company’s revenue recognition policy and automating the revenue recognition process. 

Ideally, you’ll have access to a dedicated financial operations platform that sits between your CRM and GL to ensure that all your financial records remain up-to-date. Then, you can start generating reports on revenue, deferred revenue, invoicing, accounts receivable, and other key financial metrics. 

But what about just using spreadsheets?

Managing revenue recognition in spreadsheets is fine when you only have a handful of customers, but when you scale to hundreds or even thousands of customers, it’s not sustainable. One of the biggest risks of using spreadsheets to warehouse your financial data is that things will fail silently. All it takes is one manual error to break the integrity of your financial records. Before you know it, your data is all screwed up, and you have no way of articulating the current health of your business to your executive leadership team, your board, or potential investors.

Real-time updated SaaS subscription metrics

In order to stand out to potential investors, Whitfield also recommends that you have clearly defined SaaS subscription metrics on hand and available for investors. The ability to quickly pull real-time metrics, make predictions, and explain specific business outcomes will help you gain trust and credibility with investors, increasing your chances of receiving funding and boosting your valuation. The more salient you are to your investors, the more likely you are to get funded.

Challenge #2: Month-end close

Between error corrections, adjustments and reconciliations, and producing your P&L, the time it takes to close the books can easily spill over from one month to the next.

The typical month-end close involves a constant back and forth between your spreadsheets and general ledger. In the early stages, many SaaS businesses supplement spreadsheets with general ledger software as an “easy option” but quickly realize that general ledger software doesn’t efficiently manage subscription revenue recognition.

And to make matters worse, most finance professionals have to complete month-end close on top of their other responsibilities. It’s like a never-ending game of catchup. This process won’t be sustainable for long if your company has its sights set on rapid or consistent revenue growth.

How can you fix the scramble for month-end close?

First, you need to define what “efficiency” looks like. Does your month-end close take five days? Do you need to cut it down to three? Do you want to be able to identify data errors ahead of time? Or eliminate them altogether?

Once you’ve determined what success looks like, you need to re-evaluate your financial tech stack. To execute these new goals and solve for your accounting pains, you can implement a FinOps tool (like Maxio) to act as your single source of truth for financial and subscription data. This tool will sit between GL/CRM and keep data flowing between both systems.

With a dedicated FinOps platform, you can:

  • Automate billing & collections, financial reporting, and A/R management
  • Generate revenue and expense reports, which are fed directly from your customer contracts
  • Capitalize, recognize, and report on expenses automatically

And most importantly, reduce your month-end close from a few days to a few hours.

Challenge #3: Passing your audit

The word “audit” can be a scary tune for most people—but not if you have the right processes in place. How can you conduct a quick, clean audit without causing a massive pain for your finance team?

Here’s a few tips:

Close your books with detailed schedules

Each time you provide a summary number, ask yourself: can I pull the details behind this number? (For example, if you say revenue for the last quarter was $3.5 million, can you provide a schedule showing the revenue by customer, contract, and item supporting that summary number?) If you don’t, start preparing now. 

Don’t forget, in addition to the detailed schedules, you’ll be asked to provide additional support for a subset of those customers. Ensure you can easily provide copies of contracts, addendums, SOWs, POs, vendor contracts, invoices, batch deposit support, bank statements, time entry reports, and any details behind the percentage-of-complete revenue. Nothing is off the table. 

Perform reconciliations regularly

Avoid the scramble of a one-time reconciliation. Reconcile on a monthly or quarterly basis to keep your skills sharp, identify reconciling items, and give yourself time to investigate and resolve discrepancies. 

Address key transactions, commitments, and contingencies

Do yourself a favor and make a list of key transactions or commitments/contingencies that could have a potential impact on the financial statements. As a general rule of thumb, your auditors will want all the details on anything over 10% of bookings, revenue, invoicing, etc.

Break the “one spreadsheet, one person” rule

In fear that a small error will break everything, many growing SaaS businesses have one team member that owns their financial spreadsheet. In this model, you have two points of failure in your business—it’s an unnecessary risk you can’t afford to make when audit time rolls around.

In lieu of a spreadsheet, a finops tool gives you reports and features you can trust:

  • Deferred Revenue Rollforward
  • Out of Balance Notifications
  • Amortized Commissions
  • RevenueBooks

Goodbye spreadsheets, hello term sheet

Whether or not your ultimate goal is to raise a funding round, eliminating spreadsheets is the first step to streamlining your financial processes and impressing investors. With an integrated financial tech stack, growing SaaS companies can easily tackle their due diligence, month-end-close, and audits (without creating unnecessary finops debt).

For more advice on streamlining your financial processes, you can access the full webinar here. Or, you can start making improvements today with our revenue policy template.

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