Most entrepreneurs track their business the simple way: money hits the bank account, so they call it revenue. Makes perfect sense when you’re building and growing. But when it comes time to sell your SaaS company, this approach will bite you.
Here’s why. Let’s say you land a huge annual contract in January and collect $2 million upfront. Your spreadsheet shows $2 million in January revenue. What a month! But buyers don’t see it that way. They’re looking at accrual accounting, where that $2 million gets spread across the 12 months you’re actually delivering the service. So January only counts for about $167K.

The gap between these two numbers can be massive, especially if you have seasonal sales cycles or you’ve been aggressive about collecting annual payments upfront.

When buyers see inflated revenue numbers based on cash collections, three things happen: confusion, skepticism, and often a complete repricing of your deal. Nobody wants to spend weeks reverse-engineering your real numbers. They’ll either walk away or slash their offer to account for the uncertainty.

The irony is that proper revenue recognition actually tells a better story about your business. It smooths out those wild monthly swings and shows the real growth trajectory that buyers care about. Sure, you lose those exciting cash spikes, but you gain something more valuable: credibility.

If you’re thinking about selling in the next year or two, start tracking accrual revenue now. Don’t wait until you’re in a process to figure this out. Clean financials aren’t just nice to have… they’re the difference between a smooth sale and a deal that falls apart.