We sell SaaS software subscriptions to customers across the United States and do not charge sales tax. I recently heard that regulations have changed in New York to make SaaS software subscriptions taxable.

sales-tax compliance tax-law

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Treat the auto-renewal periods as unbooked contracts due to the customer's right to cancel the auto-renewal periods for any reason. Assuming the first 3 years of the contract are not cancelable without cause, you should book the expected revenue for that period as deferred revenue and recognize it appropriately over the period (depending on the nature of the product or service provided under the contract). The auto-renewal periods should not be booked as deferred revenue until the customer's right to cancel has passed (within 30 days of the auto-renewal period).

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Auto-renewal is a generic term usually applied to contracts that include terms that cause the contract to be automatically extended (renewed) for one or more subsequent periods after the initial term of the contract - usually such contracts contain provisions for cancellation prior to the automatic renewal or extension. You need to review the provisions of the contract related to termination in order to determine whether or not any of your contracts will "auto-renew".

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You should consider educating yourself on the common methods used for business valuation, so that you can make your own independent judgment for comparison to what your business broker is telling you. In short, there are 3 valuation approaches that are frequently discussed. 1) Asset valuation which basically amounts to totaling up the assets of your business and reducing the amount by your liabilities. The difficult part of this approach is assessing the value of assets and liabilities that are not accurately valued on your balance sheet (such as the value of your brand, customer relationships that will produce long term future revenue, or the risk of a major regulatory change that would damage your business). 2) Market valuation which is essentially based on finding values for comparable companies and using those to estimate the value of your company (i.e. a competitor half your size recently sold for $10 million, which may lead you to estimate the value of your company at $20 million). 3) Income valuation which is based on projecting your future earnings and using the discounted cash flow method to find the value of those earnings in today's dollars.

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Keeping track of member interests (equity) in a LLC is typically fairly simple. Essentially, you track each member's contributions and distributions (or draws) and apportion retained earnings based on the profit share per member as determined by the LLC operating agreement. For example, Member 1 contributes $100,000 and Member 2 contributes $100,000 at company formation. The LLC operating agreement states that profits and losses will be apportioned based on the member's contribution as a percentage of total contributed capital - in this case, each member has contributed 50% of total capital. The LLC earns $100,000 net income in its first year, and each member draws $25,000 to cover their personal tax liability. As a result, Member 1 and Member 2 each end the year with $125,000 member interest (a total of $250,000 member interest or equity in the LLC at year end). The equivalent of a cap table for the LLC would simply show the profit/loss share percentage for each member as agreed upon in the LLC operating agreement (you don't really find cap tables for LLCs because there are typically not shares, options and related prices to keep track of since many investors can't or won't invest in an LLC). Unlike a C Corp, there is no common stock, additional paid-in-capital, or dividends to track from an accounting perspective. And as mentioned above, there is really nothing to manage as far as a cap table because LLC is not the typical vehicle used when your objective is to raise equity capital from outside investors (largely due to the fact that all investors in an LLC are members that are subject to pass-through tax liability).

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There are really no circumstances that I can think of where gross margin should exceed 100% if an organization is properly recording transactions according to GAAP. Theoretically, an organization might book contra-expenses against cost of revenues accounts that exceed the total cost of revenues resulting in negative cost of revenues and a gross margin in excess of 100% during a certain period. However, it is almost certain that such an organization is improperly accounting for these contra-expenses as they should more likely be an offset to a prepaid expense and have a net zero effect on the income statement or be reflected as income if they are not directly tied to expenses incurred.

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The accounting treatment depends on the specifics of your obligations to customers under the new subscription arrangement. For example, if the subscription agreement states that you are granting the right to use the license as well as agreeing to provide maintenance and services throughout the full 3 year term, then the revenue recognition should occur on straight line basis over the 3 years (i.e. after one year, you should have recognized one-third of the revenue under the agreement because you have fulfilled one-third of your 3 year obligation). However, if the subscription agreement grants the right to use the license and agrees to provide maintenance throughout the full 3 year term but only agrees to provide a fixed set of services (whether limited by time or deliverables), then you will need to allocate a portion of revenue to services and recognize the revenue for those services as they are delivered while recognizing the remaining revenue allocated to license and maintenance on a straight line basis over the 3 year term.

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Absorption costing refers to the allocation of both direct and indirect costs of manufacturing a product or providing a service. The allocation of costs may be accomplished by various methods including activity-based costing, standard costing, etc. Large, integrated oil and gas companies engaged in upstream, midstream and downstream activities such as ExxonMobil may use a combination of product costing approaches in preparing their financial statements. However, property, plant and equipment depreciation costs are a major factor in inventory costs due to the significant investments required for upstream exploration, midstream transport, and downstream refining. ExxonMobil uses both the unit-of-production method and straight-line method of calculating depreciation costs (you can find details in the inventory and property, plant and equipment notes to consolidated financial statements in their annual filings) which results in a combination of activity-based and standard cost effect on the product costs reflected in their financial statements.

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Forbearance means that the company and the bank have agreed to postpone loan payments. This is typically due to the company being delinquent (late) on its payments and the parties negotiating to determine if and how the company can resume payments and avoid defaulting on the loan. In terms of how it will impact the company, it means that the company lacks enough cash to make its loan payments. If the company goes into default, the bank may be able to claim company assets in order to recover some or all of the owed funds (in the most extreme case, this could involve liquidating the company and selling its assets).

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