Accounting for early-stage SaaS startups: what to set up before your first $10k MRR

SaaS accounting goes wrong in a specific way. The product charges cards every month, the money shows up in Stripe, and the founder reads the Stripe dashboard as the books. Then a customer pays a year up front, a CPA asks about deferred revenue, and an investor asks for net revenue retention. None of it falls out of a bank feed. This guide is the setup we give SaaS founders before they reach $10k in monthly recurring revenue, so the numbers investors ask for are already in the ledger.

Part 1 - Revenue

Revenue is earned over time, not when the card is charged

A customer who pays $1,200 for an annual plan on March 1 has given you cash, not revenue. You earn $100 of it each month as you deliver the service. The other $1,100 sits in a liability account called deferred revenue and moves to revenue one month at a time. Monthly plans do the same thing on a smaller scale: a charge on the 20th covers service until the 19th of next month, so a slice of it belongs to next month.

• Record every subscription payment to deferred revenue first, then recognise it monthly. Your billing tool can export the schedule; the books should mirror it.
• Refunds and credits reduce revenue in the month they are granted, not the month of the original sale.
• Free trials and discounts are not revenue and not expenses. Only the amount the customer actually owes goes in the ledger.

Stripe fees, chargebacks and the gross-versus-net trap

Stripe deposits the net amount after fees. If you book the deposit as revenue, your revenue is understated by 3 percent or so and your payment processing expense never appears. Book the gross charge as revenue, the fee as an expense, and the deposit as the transfer that settles both. EazeAccounts does this split automatically from the Stripe payout report; if you are doing it by hand, do it monthly from the payout summary, not per transaction.

• Chargebacks are a reversal of revenue plus a fee expense, in the month they happen.
• Sales tax collected through Stripe Tax is a liability, never revenue.
• Failed payments are not bad debt until you have stopped trying to collect. Until then the subscription is simply unpaid.

Part 2 - The chart of accounts

A chart of accounts that produces SaaS metrics

Most default charts of accounts were designed for a shop. A SaaS company needs a handful of extra accounts so that gross margin, CAC and burn can be read straight off the profit and loss statement without a spreadsheet.

Tag every expense with one of the last four departments. The temptation is to put all software subscriptions in one account; resist it. GitHub is R&D, HubSpot is sales and marketing, Gusto is G&A. Gross margin is the first number a SaaS investor checks, and it is only right if hosting and support sit in cost of revenue rather than in operating expenses.

Part 3 - The metrics

The five numbers to be able to answer any month

1. 1MRR and its movement: new, expansion, contraction, churn. Keep a simple monthly table, one row per month, four columns of movement. Every metric below comes from it.
2. 2Gross margin: subscription revenue minus cost of revenue, divided by subscription revenue. Below 60 percent, investors will ask what is in hosting.
3. 3Net revenue retention: this month's MRR from customers who were customers a year ago, divided by their MRR a year ago. Above 100 percent means expansion outruns churn.
4. 4CAC payback: sales and marketing spend in a month, divided by the new MRR that month times gross margin. Under 12 months is healthy for SMB SaaS.
5. 5Runway: cash in the bank divided by average monthly net burn over the last three months. Say it in months, and know the date.

Part 4 - Setup checklist

What to have in place before $10k MRR

• A business bank account and a business card, with nothing personal on either. Founders' reimbursements go through an expense claim, not the company card.
• Stripe or your gateway connected to the books, with gross revenue, fees and deferred revenue handled automatically or in a monthly routine you actually do.
• The chart of accounts above, with department tags on every expense.
• A monthly close by the tenth: bank reconciled, Stripe payouts matched, deferred revenue rolled forward, MRR table updated.
• Payroll through a provider that files the taxes. Founders paying themselves as contractors is the most common cleanup we do.
• A folder for every contract that has a payment term longer than a month. Annual deals, discounts and non-standard terms are what diligence asks about first.
• Sales tax nexus checked once you have customers in more than a couple of states. SaaS is taxable in about half of them.

What you can leave until later

Capitalising development costs, stock-based compensation accounting, multi-entity consolidation and audited financials can all wait for a Series A or a real revenue base. Doing them early adds work without adding insight. What cannot wait is revenue recognition and the chart of accounts, because every month done wrong is a month someone will later have to redo.