Financials are one of the challenging aspects that business entrepreneurs find tough to manage. This is why 29% of startup failures occur due to poor cash management.

If you want to win the trust of business stakeholders and focus on growth, it’s important to nail your financial reporting. It provides an overview of the financials of your SaaS business.

This article will help you learn everything you need about financial reporting for SaaS businesses.

What is financial reporting?

Financial reporting conveys financial information about the business to internal and external stakeholders. It is not limited to the company’s financials. It also offers several other business insights, including:

• Optimized debt management
• Enhanced working capital management
• Real-time insights and tracking for quick business decisions
• Identification and forecasting of business trends
• Better management of assets and liabilities
• Cash flow analysis and insights
• Internal controls to prevent fraudulent activities

Different stakeholders can make use of financial reporting to make decisions that can impact the future of the business:

• Internal finance teams can create future budgets, projections and
• Management teams can make strategic decisions around business growth and
• Investors can make decisions regarding buying stocks or equity
• Regulatory bodies can analyze credit applications for loans, lines of credit, and letters of credit for overseas

What is the objective of financial reporting?

The main objective of financial reporting is to provide all the relevant financial information to all the stakeholders. It helps them make strategic decisions regarding the company’s growth and future prospects. Apart from this, financial reporting helps in the following ways:

Track cash flow

Financial reporting helps stakeholders understand where cash is coming and going from. It also lets investors understand if the company has enough cash to cover the expenses and keep the business going.

Assess long-term operational effectiveness

The balance sheet accurately records the company’s assets and liabilities at the end of a financial period. You also have the income statement that provides relevant data regarding the sales, expenses, and profit or losses during the period. With accurate financial reporting data, investors can understand the past income performance of the company and get an idea of future cash flow.

Ensure compliance

Financial reporting ensures businesses follow all the required processes to comply with mandatory accounting regulations. It simplifies tax, valuation, and auditing processes. This way, the time to complete necessary financial obligations gets reduced, further validating financial compliance.

Mitigate financial reporting errors

Accurate and on-time financial reporting helps you find out and address any discrepancies in the financial statements. You can avoid additional costs or fines as a result of timely action.

What are the components of financial reporting?

Financial reporting commonly contains four main financial statements.

1. The balance sheet
2. Income statement
3. Cash flow statement
4. Equity statement

The first three statements are part of the three-statement model. It provides the foundation for all financial reporting. However, all four statements combined are considered key financial reports for any business, public or private. A financial reporting software can help you generate and streamline how you create and analyze these components.

Here’s an overview of all the components:

1. Balance sheet: It outlines the company’s assets, liabilities, and shareholders’ equity for a specific date. Businesses typically create a balance sheet at the end of the fiscal The assets are listed based on their liquidity, while the liabilities are listed based on when you have to pay them.
2. Income statement: Also known as the profit and loss (P&L) statement, income statement talks about the company’s profitability under accrual accounting They cover either a year (annual financial statements) or a quarter (quarterly financial statements), and show how a company got their net income for that period. The components of an income statement include revenues, expenses, and earnings per share, and usually include past data for comparisons.
3. Cash flow statement: This statement shows the movement of cash—inflows and outflows—from operating activities (day-to-day business operations), investing activities (purchase or sale of assets), and financing activities (debt or equity transactions) over a period of time. It helps you understand cash flow, which is important to ensure adequate liquidity for operational
4. Equity statement: This financial statement talks about a company’s equity changes over time. Net profit or loss, individual gains or losses, shares bought and sold, and dividend payments drive this change. Stakeholders can use this statement to see what factors caused a change in owner’s equity during the accounting

What are the main challenges of financial reporting?

Subscription-based business models like SaaS present different challenges. For example, recurring billing gets complex due to different billing models, mid-month upgrades and downgrades, add-on charges, etc.

All this contributes to problems in financial reports. On top of this, most ERP and CRM systems can’t handle recurring revenue.

So, here’s an overview of all the problems associated with SaaS financial reporting:

• Revenue recognition: SaaS businesses have different subscription models (monthly, annual, usage-based). They must follow accounting standards like ASC 606 (IFRS 15) to have guidelines for recognizing revenue during the subscription
• Customer churn: The customers who cancel their subscriptions negatively impact the
• Contract complexity: SaaS companies often provide bundled services in a Accounting for these services becomes complex since you allocate the cost of each tool based on their standalone selling price.
• Taxation: You must follow tax compliance rules to avoid legal issues. Since SaaS products usually operate globally, it becomes challenging due to the involvement of different taxes, such as sales tax in the US and value-added tax (VAT) in European

How can technology help with quicker and accurate financial reporting?

Technology holds the power to change how you handle finances. You can track, forecast and report your financial performance in a faster, easier, and more accurate manner.

The right financial software helps you do more than just mitigate the challenges. You can also use it to find actionable insights to help your business grow.

Use a powerful, strategic financial planning and analysis (FP&A) platform that can help you seamlessly connect your business applications and data sources with integrated financial budgeting, planning, forecasting, and reporting.