Saas Business Valuation | Accrual or Cash Basis

searcher profile

November 19, 2021

by a searcher from Trinity Western University in Vancouver, BC, Canada

I am looking at a small Saas business that in the prospectus, the broker presented the income statement on an accrual basis (the revenues). During due diligence, I realized that the profit on a cash basis is about 10% less. They provided the cash basis reconciliation after we signed an LOI.

My question is - is this normal? I feel like I'm overpaying the 10% x my valuation. I'm new to this and I don't feel like I will get a straight answer from the broker. Any help is appreciated!

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commentor profile
Reply by an investor
from University of Pennsylvania in Washington, DC, USA
Serial SaaS entrepreneur & investor here. Generally SaaS business should be done as accrual accounting (that's the right way to do it). Usually at the small scale you see the reverse (done as cash accounting and after the buy, you need to move it to accrual accounting). Thinking through deferred revenue and liabilities associated with it is always something to think through as related. Happy to chat offline - DM or redacted
commentor profile
Reply by a lender
from Universidad Carlos III de Madrid in Miami, Florida, EE. UU.
Hello Carlos. If you are also thinking of financing for this acquisition we can help you with that. We finance up to 80% through Revenue Base Lending. We can finance you in 7 days. Message me if you are interested. redacted
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