Accounting Tips for Subscription-Based Businesses

Running a subscription-based business is not an easy task. You must handle your finances carefully to grow and expand your business. In a place like Ohio, where subscription-based businesses are common and always in competition with each other, good accounting practices are crucial to succeed. 

Subscription-based businesses have unique needs due to the unique nature of their work. The money comes in regularly from your clients and not just once. This means you also need a different and tailored method to track revenue, cash flow, and customer numbers. Moreover, there are specific laws for sales tax on subscriptions in Ohio. 

For businesses like this, there should be a good accounting system in place. You should be able to track your income and spending properly. Numbers like customer lifetime value (CLV) and customer acquisition cost (CAC) should also be checked. To avoid feeling overwhelmed with accounting work, hire a Columbus accountant today. 

Accounting tips for subscription-based businesses

• Record revenue on time.

It is very important to know when to record revenue. This is especially important for subscription-based businesses. You should recognize the revenue when you earn it, not when you receive the payment. For example, if a customer subscribes to your service for two years and pays all the money upfront, you should not recognize the revenue at once. 

You should avoid doing this and record income when you actually receive the payment. You should also track recurring payments properly. If you fail to do so, it can result in incorrect charges. Moreover, many owners also forget to subtract money for refunds or cancellations, which can be a big problem.

• Keep track of prepaid revenue.

As the name suggests, prepaid revenue is the advanced payment of services or products that you will deliver in the future. For example, a customer subscribes to your service for six months. Now the payment you receive is considered deferred revenue until you actually provide the service to your client each month. 

It is very important to keep track of this revenue correctly. If you fail to track it, you might report earnings too early. This can affect your financial statements and lead to confusion and errors.

• Use automated billing tools.

If you have a subscription-based business, you should use automated billing tools. It can make your work a lot more easy. They will help in automatically charging customers on time, sending reminders in case of any failed payments, and so on. 

This can reduce manual work and the risk of errors. However, the billing tool should be user-friendly. It should be secured and able to handle recurring payments properly. 

• Watch customer churn.

Churn refers to the rate at which customers cancel their subscriptions or stop using your service. It is important to understand churn value. High churn means that your business is losing customers, which can directly affect your revenue. 

Therefore, it is very important to keep an eye on churn to understand whether your business is growing or shrinking. Churn can greatly affect your cash flow and profitability. When customers stop purchasing your service, you will lose future payments. This can create a cash flow gap. 

• Manage expenses and cash flow

Tracking expenses is an important part of every business. You should set up a system to track every expense, including marketing, software, etc. This will help you identify areas where you can cut costs and make more profits. Businesses often have fluctuations in revenue. 

Therefore, it is very important to plan for future cash needs. You should keep an eye on your cash flow projections and make sure you have enough money to cover your expenses during slower months.

Running a subscription business in Ohio?

Accountants can help you track your revenue effectively and manage expenses. Get better accounting by working with an expert. Schedule a consultation today!