The traditional income statement has been around for decades. While it has its uses, it’s not specifically designed for a SaaS business. What format would a SaaS-optimized income statement have? SaaS Capital has an example.
What advantage does a SaaS-formatted income statement have over a traditional one? Increased visibility and usefulness.
- Revenue visibility–notice the breakout of revenue streams. Income statement users can easily identify recurring vs non-recurring revenue.
- Expense visibility–Cost of Goods Sold (COGS) is more granular. COGS and Gross Margin receive a lot of attention from income statement users, as Gross Margin determines how much money is available to grow the business after covering the cost of revenue.
One final note. In SaaS, recurring revenue gets the publicity. But there are also recurring expenses. COGS and parts of the operating costs (e.g., rent, some level of marketing, etc.) will be recurring.
In other words, costs incurred today will likely be incurred tomorrow. Keep this in mind when analyzing expenses.