Financial audits are a critical part of running a successful B2B SaaS business. They validate your financial reporting, ensure accuracy, and demonstrate compliance with regulations.
But audits can also create major stress if you're not prepared thoroughly.
When audit time comes, having organized documentation and finances in place makes things go smoothly. Whether you’re gearing up for an internal or external financial audit required by investors or regulations, adequate preparation is essential.
If you don’t know where to start, we can help. We’ve prepared five actionable strategies to get your B2B SaaS business ready for its next financial audit.
1. Ensure Proper Documentation and Record-Keeping Practices
Having organized and comprehensive financial records is essential to passing any audit. That’s where robust documentation and record retention policies come in.
Proper documentation shows the validity of your reported earnings, expenses, profits, losses, and other metrics. Thorough records also help you quickly provide auditors with any materials they request.
To achieve this goal, some best practices to adopt include:
- Maintain organized physical and digital copies of all financial records
- Use accounting software to securely store financial records digitally
- File records clearly by year and type for fast retrieval
- Limit financial record access to authorized personnel only
- Back up critical documentation regularly, onsite and offsite
Remember, when it comes to financial audits, the devil is in the details. So take time to organize all records and keep them up-to-date.
2. Regular Financial Health Checks and Self-Audits
Rather than wait until an audit is scheduled to scrutinize your finances, consider taking a proactive approach. Engage auditors to routinely perform self-audits to verify accuracy and uncover any issues early in advance.
Monthly or quarterly reviews of income statements, cash flow, taxes, debt levels, valuation, and other metrics can identify any issues. This way, you’ll detect errors early, allowing you to correct them promptly before they cost your company more.
Self-audits also give you fresh experience examining your finances through an auditor's lens, making official audits less intimidating.
In addition to financials, regular financial health checks and self-audits help keep your SaaS start-up sales strategy on track. And if it's not, Attrock can help you revamp them accordingly.
3. Document Subscription Agreements
Documenting subscription agreements and renewals involves confirming all active customer subscriptions, subscription terms, and billing details are correctly documented.
Maintaining meticulous subscription records prevents disputes over revenue numbers or charges and shows the continuity of your subscriber base over time. This shows auditors the steady revenue and customer lifetime value (CLV), crucial for assessing your SaaS business's worth and well-being.
Moreover, clear documentation of subscriptions facilitates accurate revenue recognition over the subscription period. According to the expert Younium guide on revenue recognition for SaaS can help you to know more about the process and compile with rules.
Nevertheless, factors like the subscription-based model, complex contracts, revenue recognition standards, and more make revenue recognition for B2B SaaS companies challenging.
It helps ensure all subscription agreements are in order in time for the financial audit.
4. Stay Compliant With Regulatory Requirements
The SaaS industry is highly regulated, with over 40% of SaaS B2B companies prioritizing boosting their compliance management. These regulations typically apply to operations, data handling, and financial reporting.
It’s important to know which rules and compliance standards you must follow and incorporate into your financial operations and documentation. Some of the top regulations that apply to B2B SaaS companies include:
- Data security and compliance
- HIPAA
- GDPR
- CCPA
- Security compliance
- PCI DSS
- SOC 2
- ISO/IEC 27001
- Financial compliance and revenue recognition
- GAAP
- ASC 606
- IFRS
Violating compliance rules causes major issues during audits, like inaccurate revenue recognition, improper expense classification, and flawed valuation methods. On the other hand, non-compliance can lead to stiff penalties, a damaged reputation, and lower company value.
5. Implement Strong Internal Controls
Did you know that a staggering 75% of business data loss is due to a human-related element like error, stolen credentials, or privilege misuse?
Auditors will closely examine all your financial processes, checks and balances, and internal oversight measures during the audit. Implementing strong internal controls is more crucial than ever for B2B SaaS companies facing financial audits.
Some common internal controls to implement include:
- Multiple sign-offs for disbursements
- Regular account reconciliation
- Segregate employee duties
- Continuous monitoring
- Access controls
Ensuring sufficient internal controls helps prevent errors, fraud, and inaccurate reporting. This provides auditors with accurate and reliable data, simplifying the audit and saving you time and money.
Furthermore, strong internal controls enhance your company’s cybersecurity and investor confidence.
Final Thoughts
While unavoidable for B2B SaaS companies, financial audits don’t have to be as demanding. With the right preparation, financial audits can become routine, smooth check-ups rather than nerve-wracking events.
These five strategies minimize headaches and instill confidence when your finances are scrutinized. Implement them and transform audits into positive experiences that strengthen your financial position and boost investor confidence.
