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SaaS Revenue Recognition Challenges with QuickBooks (And What You Can Do About It)

QuickBooks is an easy decision for a SaaS startup or SMB. However, subscription-based businesses quickly run into challenges. QuickBooks does many things well, but it doesn’t efficiently manage subscription revenue recognition or subscription billing, especially if you have sales-negotiated behavior in your contracts, which is the heart of financial operations for a SaaS business and is required by ASC 606 and GAAP compliance.

That’s why SaaS companies augment QuickBooks with spreadsheets. We’ve seen it all when it comes to revenue recognition spreadsheets  they’re complicated and error-prone.

There’s a reason revenue recognition gets complicated with subscription businesses

Subscription-based businesses can’t fully recognize revenue from a contract until they’ve delivered the agreed-upon services. But with varying contract lengths, sometimes bundled services and the occasional non-standard service, SaaS businesses need the flexibility to recognize revenue in a manner consistent with their agreements. In B2B SaaS, this might mean a combination of amortizing revenue over the term or recognizing it based on completing certain contractual milestones.

This is further complicated by the inherent contract volatility in SaaS financial operations. Upgrades, downgrades, renewals, re-negotiations of renewals, upgrade-extensions, cancellations and early terminations are all fair game in B2B SaaS, and they all put pressure on your financial operations team as QuickBooks and spreadsheets are poorly suited to managing it all.

QuickBooks doesn’t natively support SaaS/subscription revenue recognition

There’s lots to love about QuickBooks, but for SaaS businesses, revenue recognition isn’t intuitive or efficient, leading to workarounds in Excel and an increased chance of error.

Here are three ways QuickBooks makes SaaS revenue recognition a challenge:

  1. There’s no contract object in QuickBooks.
    GAAP compliant revenue recognition is calculated at the contract level. The best you can do within QuickBooks is at the customer level, but that’s not GAAP compliant. Customer level isn’t fine grained enough for GAAP, particularly if you have one customer with multiple contracts. Instead, many SaaS companies will create a workaround (frequently referred to as their ‘Contract Ledger’) in Excel to replicate the economics of their contracts.
  2. It’s complicated to schedule invoices in QuickBooks.
    QuickBooks struggles to capture the economic value of your contracts. It’s not unusual for a SaaS contract to be invoiced monthly or quarterly. Especially if you have sales reps negotiating with customers, you’ll end up with a dizzying mix of annual invoices, monthly invoices and quarterly invoices, as well as differences between contracts. It’s clunky to set up recurring invoices in QuickBooks because there are no contract objects or options for varying term lengths within invoices. 

    Furthermore, it is difficult to report on upcoming invoices in Quickbooks, so forward-looking visibility is severely limited, forcing you to replicate your invoice schedules in Excel simply to see down the road a bit.

  3. Deferred revenue has to be calculated manually outside of QuickBooks.
    QuickBooks has no way to automatically recognize SaaS revenues or calculate deferred revenue, which is why revenue recognition and deferred revenue calculations live in spreadsheets. When using spreadsheets, you use a journal entry to update the amount of revenue recognized and the amount of deferred revenue remaining. This becomes increasingly difficult when a company has numerous subscription contracts. A journal entry takes three seconds, but it’s fighting and correcting the spreadsheets that take so much time. While it’s not so bad if you only have a few customers, it quickly gets terrible as you grow.

Bonus: There aren’t financial metrics within QuickBooks. 

This isn’t a rev rec challenge, but it IS a saas business challenge with Quickbooks that further pushes people into spreadsheets to compensate. QuickBooks provides basic general ledger functionality, but that alone is insufficient for a SaaS business. You must have both GAAP-Financials and SaaS metrics like churn (logo and dollar), MRR, ARR, CLV, and CAC. For example, there is no place on an income statement to see churn. You cannot run a SaaS business without knowing your churn. Nor is there a place on an income statement to see the composition of your revenues (new revenue, renewal revenue, etc.)

Because of these challenges within QuickBooks, workarounds with Excel are common, but there are four main disadvantages to using Excel:

  1. It’s inefficient and takes lots of time.
  2. It’s error-prone because of the additional human touchpoints.
  3. It complicates and protracts audits (see point 2 above).
  4. Pulling metrics for investors is time-consuming.

Are you actually outgrowing QuickBooks, or are you just outgrowing QuickBooks’ financial reporting capabilities?

These are two different things, and not everyone realizes it. QuickBooks is designed as a general ledger, not a platform for subscription billing and revenue recognition.

Due to the limitations of QuickBooks for revenue recognition, many B2B SaaS businesses will start looking at ERPs like Sage Intacct and NetSuite for their general ledgers. The price tag of an ERP is steep, but the move can make sense and be good for a mature SaaS company. We’ll cover that in an upcoming blog post (so stay tuned).

The truth is you don’t have to make the big jump as soon as you think. And you don’t have to live in spreadsheets. We’re devoted to helping SaaS subscription businesses like you break away from spreadsheets  without breaking the bank.

You get to keep QuickBooks along with your sanity. We get to go to work every day knowing we’re helping 400-plus B2B businesses grow from start-up to maturity with the subscription management and financial operations insights they need, VCs depend on and GAAP requires.

It’s a win-win-win scenario.

What Our Customers Are Saying

B2B SaaS companies rely on SaaSOptics at many stages. One such company is Schoology, a learning management system with almost $60 million in funding, 12 million users and QuickBooks as their general ledger.

Schoology’s QuickBooks integration with SaaSOptics makes life easier and gives them the metrics and reporting they need to grow.

“SaaSOptics pushes invoices to QuickBooks, and this meant invoices would always match bookings, which closed the loop on revenue recognition. As well, if a transaction for a two-year deal was closed and payments needed to be split into 24 monthly increments, we could automatically establish these at the time of booking. The SaaSOptics integration ensured invoices were pushed out of QuickBooks in a timely manner and without relying on manual steps—we could set it up and rely on it to just happen. Then, I could easily report on it.” 

– Amar Shrivastava, Schoology VP of Finance and Administration