In my automation conversations with owners of subscription-based businesses, there is one tool in their online ecosystem that is typically never mentioned. They are usually more concerned with automating their CRM, email marketing services, messaging, project management, or others.
What is this forgotten software tool? Surprisingly, it is their accounting/financial records system. I haven’t completely figured out why this is the case. But, I suspect it is because it doesn’t become important until there is a problem.
Start-ups and even growth stage subscription-based businesses focus on getting more clients. They worry about the reconciliation of these new client payments later on. As they grow, the reconciliation starts to get out of hand and pushes into their focus more. It’s hard to tackle it though while there are still more clients coming in.
For long-term scalability, your accounting/financial records system needs to be included in the conversation.
The Puzzle Pieces
Your Payment Gateway
This is the service that facilitates online transactions and allows you to process them. Payment gateways have approved relationships with credit card companies to serve in this role.
Your Merchant Account
This is a holding account where the payments from your online transactions first land. Then, they are deposited into your regular bank account manually or on a schedule.
Fundamentally, the payment gateway and merchant account work together to create your method of processing payments online. For those of us who remember the days before Stripe came along, it was a royal pain to set this up. The fees and charges were confusing and pulling transaction reports were a nightmare.
The Hybrids
Now, subscription-based businesses can choose from hybrid platforms that combine multiple features. Stripe is widely used online because it just works. It’s fast and easy to get going without jumping through several bank approval hoops. Stripe is a hybrid because it serves both the payment gateway and merchant account roles. Braintree is another popular choice.
Now that we know how processing and receiving online credit card payments works, let’s go further into the puzzle.
Your Accounting/Financial Records System
This is where you are tracking all of your financial transactions. It contains your expenses, invoices, income, and liabilities. This system accepts financial data and then provides important insights and reports to the financial health of your business.
To get an accurate look at your overall finances, this system needs to be aware of every incoming and outgoing transaction. The easiest way to keep your system involved is to connect it with the rest of your online ecosystem. For this reason, we only recommend cloud-based accounting systems for online businesses and especially those with subscription-based services.
Popular systems in this category include Xero, Quickbooks Online, Zoho Books, Wave, and on it goes. Here is where things get tricky…
Recurring Invoicing/Billing and Subscription Management Systems
It may seem like these are the same things, but they have key differences. To create a recurring invoice, you simply need customer details, the start date, how often to bill (monthly, quarterly, annually), the product/service name, and the amount to bill. The systems I mentioned above can all do this.
Now, let’s say you have a product based on usage billing. Or, you want customers to be able to upgrade or downgrade a subscription. How about running a special promotion with pricing changes or discounts?
This is where subscription management comes into play. Sure, you could make manual invoices and adjustments to accommodate all this. I bet at the end of the year and tax time you’ll wish you hadn’t.
Both Stripe and Braintree have subscription management features, but depending on how complex your subscriptions are, you may need something more comprehensive. Popular subscription management companies include Chargebee, Recurly, Chargify and more. These sit on top of your payment gateway and merchant account to give you more control of subscription features.
If your subscriptions are simple like a standard 3-tiered offering billed monthly (or even quarterly and annually), you can likely get away without having a separate subscription management platform.
How Does This All Go Off Course?
Online business owners, myself included, like our website and sign-up forms a certain way. We want to control not only the look and feel, but the whole customer experience. This branches into landing pages, thank you pages, and email marketing options.
Even if our accounting/financial records system can handle our recurring billing, we’re not interested! We have taken the time to create a compelling service page and we want you to sign-up through our preferred method (that just so happens to connect with our payment gateway).
Now we really get into choices. I LOVE using Gravity Forms for everything possible. Others use WooCommerce, ThriveCart, AccessAlly and MemberMouse, Kajabi, and the list goes on. These all depend on what your focus is and what features you need. I get excited just thinking about all of the options. I bet you also start to forget about your accounting system too.
Keep These Things in Mind
Fellow online business owners – I know you’re going to continue to control the whole customer sign-up experience on your website. I am too. But, to keep your finances in order here are a few simple recommendations:
- Choose an accounting system that is cloud-based
Do you really want to export and import files to your desktop system all the time? - Choose an accounting system that works with the payment methods you need
Stripe can accept ACH payments (direct charges to bank accounts), but Braintree does not. Braintree is owned by PayPal, so of course it accepts PayPal payments and Venmo (digital wallet owned by PayPal). - Complex billing deserves advanced subscription management
Make your life easier and upgrade to a system such as Chargebee - Choose a consistent naming system for your subscriptions
This makes automation easier and your bookkeeper will know which account to assign your transactions to. - Keep your bookkeeper in the loop (if it’s not you)
Don’t assume they will get everything they need from your transactions. Launched a new product? Let them know.
Subscription-based online businesses can scale faster and more easily when their accounting systems are involved in their ecosystem of tools. As you can see, there are many variables to the choices you make. But, giving this thorough consideration will generate accurate financial reports to help you monitor the growth of your business.