How much does it cost to hire an accountant for a small business?

Even in your average small business (1-3 employees, less than $500k turnover) there will be a broad range of options for accounting and finance including getting specialise setup, tax structuring advice, finance systems and processes together with the everyday bookkeeping and accounting functions.

Is an accountant needed for a small business?

An accountant can offer comprehensive startup and ongoing small business advice, while making sure tax compliance is prepared and filed with the relevant authorities on time.

What is the role of an accountant in a small business?

Being a business owner can be a tough job, and it’s good to have a trusted advisor to lean on in times of complexity or uncertainty. An accountant will be able to help you navigate your business through these times, and help keep compliant with relevant tax authorities.

Xero is an integrated accounting platform that can complete all small business invoicing, receipts, bank transactions and reporting for the IRD. Being cloud based means your advisers can have access to your information in real time.

Is Xero Accounting any good?

Xero is a great tool for small businesses as it gives you real time access to the financial data of your business - information we couldn’t imagine being in business without.

Understanding and Calculating Lifetime Value

We've looked at Unit Economics and now it's time to look into a big metric for SaaS businesses - Lifetime Value.

Lifetime Value doesn’t imply that you will keep all your customers for life. Each subscription will have a lifetime, and understanding how long this could be will help to forecast and see how your startup really makes money.

Lifetime Value is measured by customer and is a function of Average Revenue and the Customer Lifetime. This is often done on a monthly basis so Average Revenue will be your average monthly subscription and customer lifetime will be typically be in months.

Lifetime Value (LTV) = Average Revenue per Subscriber * Customer Lifetime

If there are consistent “blips” in the information you may want to smooth out monthly revenue by taking say the average of the last quarter.

Monthly Revenue

Including revenue rather than profit per customer per month makes the calculation more focused on sales growth over any accounting profit figures. You could take margin, which subtracts the cost of serving customers to get a more accurate “payback” of customer acquisition costs.

Customer Lifetime

Customer lifetime is a function of how historically subscribers have cancelled their subscription (or “Churned”). It is not a forecast or an estimate. For example, if you have 1000 subscribers and 10 left last month, then your monthly churn rate is 10/1000 = 1%

The customer churn can have a significant impact on calculating Lifetime Value. As you can see in the chart below, decreasing Churn by 1% lead to an increase in Lifetime Value of $833 per customer.

Putting into Action

Business Planning is a great time to form some assumptions on what your business model looks like. Decide what metrics you’ll look to setup an efficient means of collecting them (i.e. a google doc).

Keep stats monthly and review progress against your assumptions.

Review one key metric each quarter, test its calculation basis, what should be included or excluded and really see if it's the right metric to track.

Further reading on SaaS metrics: http://www.forentrepreneurs.com/saas-metrics-2-definitions/

Disclaimer: Information provided to the best of the authors knowledge at time of publication. Laws are subject to change and independent advice should be sought before considering an investment decision. The above information is general in nature and should not be construed or relied on as a recommendation.