How to Accurately Account for SaaS Spend in Your Bookkeeping

February 6, 2019 in SaaS Spend

Guest post by: Jaren Nichols, Chief Operating Officer at Zipbooks

Keeping accurate books may seem sleep-inducing, but it’s actually a fundamental that can keep your business growing. Accurate books lead to accurate reports that lead to smart business decisions. You simply can’t grow your business without minding your chart of accounts.

One account (or category) that has grown 20x within the last five years is SaaS spending. This represents an amazing improvement for businesses who have been able to increase productivity, innovation and even revenue by taking advantage of SaaS applications. However, these spending trends also have the potential to wreak havoc on your books.

Businesses can better categorize their accounts and use that data to manage the money they spend on SaaS apps through careful bookkeeping.

Costs of Goods Sold vs Operating Expenses

If you can thoughtfully determine where to categorize your SaaS spending, you will have a cleaner picture of your business. Most businesses who take advantage of SaaS applications will categorize their spending in either Cost of Goods Sold (abbreviated COGS, and frequently called Cost of Services) or Operating Expenses.

In order to determine how to best categorize your books, take a look at all of your SaaS spend.

If a particular SaaS that you’re paying for is integral to providing your revenue-generating product, then it will be a COGS expense. For example, at my company, ZipBooks, we’ve built an alternative to QuickBooks that is enhanced by digital bank connections. We pay third-party SaaS providers to provide bank connections for our users. The more users we have on our product, the more bank connections we have to pay for. Because this expense is a critical part of the product we deliver, it falls under COGS in our books.

If a SaaS application you’re paying for is not an integral part of your revenue-generating product, it will be categorized as an Operating Expense. These expenses don’t necessarily scale as you increase your own revenue. Though they may be correlated (e.g., as you grow, you increase headcount, and therefore have to pay more for HR software), they are not a key part of delivering your own product or service.

What This Means for Gross Margins

The way you categorize your SaaS spending will impact the numbers you see on your Income Statement, particularly your Gross Profit.

SaaS expenses that are categorized as COGS expenses will directly impact your gross profit; operating expenses do not.

Because gross margin says so much about the quality and scalability of your business, it is important to identify which SaaS products that fall under COGS expenses are actually integral. Companies should optimize their SaaS spending as often as possible in order to improve these numbers. Any SaaS spending that falls under COGS expenses will typically scale along with your revenue as you grow. On a percentage basis, this means that you have a lower gross margin, and potentially, a less exciting business—because it simply costs more to generate more revenue.

It’s important to note, however, that not all COGS expenses will scale at the same rate of your revenue—services with a flat fee or resource costs, etc.—so don’t write off all COGS expenses as bad. They help you create a valuable, revenue-generating product. And besides, gross margins can get better over time as you start to recognize volume discounts and other economies of scale.

Operating expenses, on the other hand, do not affect your Gross Margins, nor do they have to scale with your revenue. Operating expenses, instead, affect only your operating income and net income. When you can categorize SaaS spending as some type of operating expense, your gross margin will remain higher, potentially giving you a more “exciting” business. This is because, in the case of operating expenses, you can grow revenue without necessarily incurring additional direct costs.

Categorize for Growth, Not “Good Looks”

Yes, being an “exciting” business is great and there is some real flexibility in categorization. That being said, there’s an important caveat: don’t just categorize SaaS spend as operating expenses purely to look better on financial reports. Correctly categorizing SaaS spend will help you more accurately grow your business—by identifying areas of wasteful spending and targeting the integral parts of your business that provide true value.

There’s an ethical and legal question here as well: when you’re raising money from equity investors or increasing debt, your gross margins will be evaluated. You need to be honest—both to accurately present the strength of your business, and to avoid potential fraud.

The strength and scalability of your business is reflected in your books, and those numbers matter. But remember, SaaS applications aren’t the only thing affecting your COGS or Operating Expenses and there are many other ways to grow or optimize.

SaaS spending will continue to grow, which is why it’s so important to be deliberate, thoughtful, and accurate in your use of and categorization of SaaS spend.

Jaren NicholsJaren Nichols is Chief Operating Officer at ZipBooks, free accounting software for small businesses. Jaren was previously a Product Manager at Google and holds an MBA from Harvard Business School.

Ditch the Spreadsheet: Track SaaS Subscriptions the Smart Way

January 18, 2019 in SaaS Management, Uncategorized

Did you know that the average mid-size business has 100+ SaaS apps in place? Even with numbers that high, the majority of businesses still track their SaaS apps with an Excel or Google spreadsheet. If you’re one of them, then you probably know first-hand how unwieldy and inefficient managing a SaaS program manually with a spreadsheet can be.

In this post, we take a deeper look at why tracking internal SaaS usage with a spreadsheet has become increasingly difficult, and offer a more effective approach going forward.

The Challenges of Tracking SaaS Apps in a Spreadsheet

First off, it’s worth stating: A spreadsheet is better than nothing. An imperfect organizational system is much better than none at all, so if that’s where you are today, know that you are still moving in the right direction.

Now, let’s take a look at why this approach can be so challenging, and where many organizations need to make improvements.

Staying on Top of Changing Subscriptions

If you’re already using spreadsheets, you know it can be really tough to stay on top of them. For one, SaaS apps are constantly rotating in and out of organizations. This is normal; part of the value of apps delivered via the cloud is that it’s easy to spin them up and down based on what your team needs at any given moment.

But this also means a manual spreadsheet requires you to continually check in with your team about whether they have added or subtracted apps from the roster. Inevitably, something falls through the cracks and doesn’t make it to the spreadsheet. It’s hard — if not impossible — to stay on top of the ever-changing rotation of SaaS subscriptions in any given organization, at least if you’re trying to do it manually.

Managing Ownership and Update Frequency

The task of keeping an internal SaaS spreadsheet up-to-date is a massive one. It could easily take up the majority of one team member’s time to update things like:

Number of subscriptions or apps from each vendor

  • Number of seats per app
  • Cost per month or year
  • Renewal dates
  • Ownership
  • Compliance status
  • Processes related to onboarding and offboarding
  • Security
  • Privacy

And lots more!

It’s almost certainly too much for one person. Yet if updating the spreadsheet is delegated across multiple team members, responsibility can become confusing and, again, items may fall through the cracks.

As far as the mechanics of remembering to update the spreadsheet, teams could set calendar reminders to do this, but at what frequency? It’s not a rote or predictable task, since (as we mentioned earlier), subscriptions change all the time.

For these reasons, even the most organized person or company will struggle to keep manual spreadsheets completely up to date.

Minimizing Human Error

Finally, spreadsheets—because they are maintained manually—are naturally error-prone. Whether it’s a mistyped line item or a small change that happened without notification (like a seat being added or a price increase from the vendor), these documents quickly become full of small mistakes that add up to an inaccurate picture of your SaaS landscape.

A Better Way Forward: SaaS Management

Rather than manually maintaining a spreadsheet of your SaaS subscriptions, we recommend you invest in a SaaS management platform. This way, you can use a single platform to view invoices, manage renewals, create approval workflows, and track compliance. In one pane of glass, you can view all of your SaaS apps, who is using them, and how much you’re spending on them.

Here’s what that looks like with Blissfully:

As you can see, a SaaS management platform allows you to automatically track all of the vendors your organization is using, as well as the number of subscriptions from each (since you may have different apps or multiple of the same app for different teams.) It will let you see at a glance how much you are spending annually and when subscriptions are set to renew.

Additionally, responsibility is clear because you can assign an owner to each vendor. If HR or finance has a question about how a particular program is being used, what it takes to onboard a new team member, or why the bill for AdWords is so high this month, they will know exactly who to go to for answers.

If your organization follows compliance or legal frameworks like GDPR or SOC 2, a SaaS management tool will also let you verify at a glance that you have only invested in tools that are also compliant with those regulations and requirements. This reduces your organizational risk and saves time and headaches when you have audits.

Say Goodbye to SaaS Spreadsheets Once and For All

Replace your dreaded SaaS spreadsheet. Use one platform to view invoices, manage renewals, create approval workflows, and track compliance. See all of your SaaS apps, who’s using them, and how much you’re spending on them.

Get the visibility and tools you need to take control of SaaS across your organization.

Schedule a demo today to learn more
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6 Common SaaS Management Challenges High Growth Companies Face & How to Address Them

December 20, 2018 in SaaS Management

Managing IT in the era of SaaS proliferation can be difficult, especially since the command-and-control model of old no longer works for most companies. A Collaborative IT approach, to contrast, involves team leaders, employees, finance, HR and IT in collectively solving SaaS management challenges. Here are six of the challenges high growth companies most commonly face, and how Collaborative IT can help address them.

1. Growth Spurs a Loss of Visibility

In the earliest stages of a company, it can be relatively easy to achieve visibility into SaaS usage and spend across the organization. However, once an organization enters the “growth stage,” it tends to become inherently less sensitive to cost. In many cases, this is a point in the business’s maturity when leaders are willing to do whatever it takes to drive aggressive growth goals around revenue, user acquisition, or other benchmarks. Visibility tends to start to get lost, and spending on SaaS can grow exponentially without any real strategy behind why or how.

How to Address With Collaborative IT: When your business begins to grow aggressively, it’s a good idea to introduce a SaaS management system that provides visibility into app spend and usage. It’s simply too much for a human being to track via Excel spreadsheet, and should be monitored in an automatic and continuous fashion. This allows team members flexibility while still providing oversight.

2. Wasted Spend

At many young companies, SaaS spending runs rampant until a finance hire is made, or someone at the executive or management level discovers a trend of inefficiency. This can take the form of overlapping subscriptions, paying for more features than are being used, or buying apps before they are truly necessary.

How to Address With Collaborative IT: When the SaaS budget starts to get out of control, an honest evaluation of SaaS usage relative to need is required. In addition, SaaS vendor contracts and licenses need to be reviewed regularly to ensure there is not overlap and waste.

3. Lack of Clear Onboarding and Offboarding Processes

The reality is that most onboarding and offboarding is done on an ad hoc basis today. You might even be surprised how common this is at larger, more established organizations. Employees request access to services or credentials when they need them, rather than receiving all of the appropriate onboarding materials up-front, which slows down productivity. On the other end, the lack of a clear offboarding process increases an organization’s risk of a costly insider threat. What’s more, onboarding/offboarding responsibilities might not even be assigned to a specific person or department, so there is often not sufficient accountability.

How to Address With Collaborative IT: This is one case where a formalized approach is very helpful. You should come up with a list of activities that need to take place every time a team member joins and a separate list of offboarding action items for when employees leave. A centralized SaaS management platform can help you automate much of these processes, with the end result of decreased risk and increased employee productivity.

4. An Overly Reactive Approach to Security

Often, it’s not until a real-world security incident takes place that teams realize they need to improve their internal practices to decrease risk. Both ad hoc and nonexistent security policies can open organizations up to a whole world of vulnerabilities. On the other side of the spectrum, some organizations employ arcane security practices (like forcing users to change their passwords at regular intervals for no real reason) that are not user-friendly and are thus often skirted by employees.

How to Address With Collaborative IT: As much as possible, security should be automated. You should put guardrails in place that make it very difficult for employees to make mistakes or engage in risky behavior. This includes enforcing secure authentication and the principle of least privilege across all SaaS applications, in addition to the secure on and offboarding practices we outlined above. (Take a deeper dive into security best practices with the Blissfully Guide to SaaS Security.)

5. A Customer-Driven Compliance Imperative

Often, when organizations sell to large enterprises or businesses within highly regulated industries, they need to complete a compliance audit such as SOC 2, or adhere to privacy regulations like GDPR. This can require a complete overhaul of how IT is handled, and often it’s difficult to do it on a dime, which means either shelling out the big bucks for outside help or losing out on the business.

How to Address With Collaborative IT: As soon as you identify prospects that are likely to have major compliance requirements, it’s time to evaluate which compliance mandates you need to meet and budget (both financially and time-wise) to meet those mandates. If you undertake this process proactively, it will minimize disruption to your business and increase your odds of winning the new customer. As far as how to check all those compliance boxes, implementing a SaaS management platform can help you verify that you are meeting requirements, provide proof to regulatory bodies and auditors, and ensure that controls are upheld on a continuous basis.

6. Discovery of an Ineffective or Redundant App

Sometimes, teams wind up using multiple paid apps that have overlapping functionality. In other cases, teams are using both free, unsanctioned apps and paid, sanctioned apps that accomplish the exact same purpose. For example, a sales manager purchases videoconferencing licenses, but the individual reps are using free apps because they’re simpler or better. In some cases, paid apps can be eliminated altogether in favor of free, allowing budget to be reallocated elsewhere.

How to Address With Collaborative IT: When a successful Collaborative IT program is implemented, it means that teams choose the apps they truly want and need, while IT and finance have oversight into what is in use. It’s a good idea to plan a quarterly review meeting where team leaders walk through which apps are being used and what team members have to say about them. Look at functionality in use as well to ensure that there is not significant feature overlap, and determine if there are areas where the fat can be trimmed, either by cutting tools or downgrading functionality to decrease overlap.

For more information on Collaborative IT, check out our comprehensive Guide to Collaborative IT.

How to Address SaaS Spend Optimization with Blissfully

August 21, 2018 in SaaS Management

By: Ariel Diaz

Both SaaS spending and the amount of app subscriptions per company are expected to double by 2020. That means people are choosing their own technologies at massive scale because it’s good for business productivity. On the flip side, a lack of visibility into your team’s apps creates chaos down the road when it comes to SaaS spending, security, compliance, onboarding/offboarding, and more. Continue reading »

Blissfully Announces $3.5 Million Investment to Power the Future of IT

August 9, 2018 in News

SaaS has matured dramatically over the last 5-10 years, to the point where teams are directly adopting the software they need to do their jobs without any oversight. The sheer number of high quality products solving all sorts of business needs has driven the fast rise of SaaS. In fact, our own data across 500+ customers shows this proliferation in SaaS is dominating across all business functions.
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SaaS Spending to double by 2020. Will you be ready?

June 24, 2018 in SaaS Management, SaaS Trends

SaaS adoption has dramatically transformed the workplace. The apps we use have become one of the most personal parts of our jobs. This trend might have started with marketing teams pulling away from IT to make their own software decisions, but It turns out every team wants the freedom to choose the SaaS tools that work best for them. While SaaS has been growing at an insane rate over the last decade, our latest analysis predicts that SaaS growth is still a rocket ship.

As a SaaS management platform, Blissfully provides real-time visibility into SaaS app usage and spend across the entire organization. This gives us an incredible perspective on the impact of SaaS proliferation on organizations of all sizes and on a quarterly basis we analyze more than eight years of data across a sample of hundreds of companies of all sizes. In our latest report – Blissfully Q1 2018 SaaS Trends – we came away with three incredible key take-aways:
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Keeping SaaS Sprawl in Check: Three Key Questions to Ask

May 29, 2018 in SaaS Management

By: Ariel Diaz

The widespread use of SaaS software is a good thing for organizations. People feel empowered to buy and use the tools they need to do their jobs effectively. On the other hand, SaaS usage can quickly get out of control from a workflow, spend, visibility, and security perspective if left unchecked. If there’s no dedicated IT person in an organization, it can be tough to even know where to start.

No need to stress; we’ve pulled together the three key questions to ask yourself to keep SaaS sprawl in check. Hint: it’s all about the relationship between people and apps.
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The New IT: From Helpdesk to Business Operations

May 24, 2018 in SaaS Management, Security, Shadow IT

By: Matt Tharp

A recent study from Cisco showed that the average organization has 15 to 22 times more cloud applications running than have been authorized by the IT department. The question is, if everyone’s installing their own SaaS apps, who’s responsible for the role of IT at an organization? This question challenges every business, from startups to enterprises, and can serve as a major point of frustration for those assigned the role of IT management. Let’s take a look at why the problem of IT ownership exists, and how smart organizations should be handling it today.

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