A SaaS business can display an impressive annual recurring revenue figure and still collect far less cash than a buyer expects. The gap may come from discounts, failed payments, annual contracts that are not yet paid, past-due subscriptions, refunds, chargebacks, taxes, foreign-exchange movements or customers who are unlikely to renew.
That is why ARR should begin due diligence, not end it. Before valuing a software business, reconcile the headline number to customer contracts, billing records, payment settlements and bank receipts. The aim is not to prove that one dashboard is “wrong”. It is to understand exactly what the number includes and whether the underlying income is durable, transferable and available to the buyer after completion.
ARR, revenue and cash are different records
Annual recurring revenue is a management metric, not the same thing as statutory revenue or cash in the bank. A common approach annualises recurring subscription value at a point in time. Yet platforms can apply different rules to discounts, past-due subscriptions, trials, usage charges and currencies.
Stripe’s current Billing Analytics documentation illustrates the problem. Its MRR definition includes active and past-due subscriptions, excludes taxes and free plans, and allows businesses to configure whether some discounts reduce MRR. It also notes that analytics charts use the account time zone while prebuilt reports use UTC. A small configuration or timing difference can therefore change the number without any fraud.
| Record | What it answers | What it does not prove |
|---|---|---|
| ARR or MRR dashboard | What the billing system classifies as recurring value | That every invoice was paid or will renew |
| Invoices and contracts | What customers were charged or promised to pay | That money settled without refund or dispute |
| Payment-processor export | Payments, fees, refunds, disputes and payouts | That payouts reached the seller’s bank unchanged |
| Bank statements | Cash actually received by the legal owner | Which customers or products generated it without reconciliation |
| Accounts | Revenue recognised under an accounting policy | Current run-rate or future retention |
IFRS 15 reinforces the distinction between cash and recognised revenue. Its principles require businesses to identify contracts and performance obligations, determine and allocate the transaction price, and recognise revenue when promised goods or services are transferred. A customer paying for a year in advance does not automatically make the whole receipt revenue for the first month.
Start by obtaining the seller’s metric definition
Do not accept “ARR is twelve times MRR” without a data dictionary. Ask the seller to write down the rules used on the exact measurement date.
- Which subscription statuses count: active, trialling, past due or paused?
- Are permanent and temporary discounts deducted?
- Are usage-based charges included, and if so, from which reference period?
- Are setup, migration, support or professional-services fees excluded?
- How are annual and multi-year contracts normalised?
- Which exchange rates and date were used for multiple currencies?
- Are VAT, sales tax and payment fees excluded?
- When does a cancelled or unpaid account stop counting?
Record this definition in the sale documents. Otherwise, the buyer and seller may use the same label for materially different calculations.
Build a four-way reconciliation
The strongest test works from individual customer records, not screenshots or aggregate totals. Request read-only exports covering at least the latest twelve complete months, plus the current partial month separately.
1. Contracts to billing
Match each material customer contract to the billing account, plan, price, start date, renewal date and cancellation terms. Investigate manual invoices, free extensions, side letters and bespoke promises that do not appear in the standard subscription record.
2. Billing to payments
Match invoices to successful charges and identify failures, write-offs, credits and accounts that remain past due. “Active” is not always the same as “paid”. Ask for the underlying rows behind the dashboard, not only a chart.
3. Payments to settlements
Reconcile gross payments to processor fees, refunds, reserves, disputes and payouts. Stripe explains that a card dispute immediately reverses the payment and can also remove a dispute fee from the platform balance. A gross-sales chart can therefore overstate cash the business ultimately retains.
4. Settlements to bank
Match payout identifiers and dates to bank deposits. Account for timing differences, multi-currency conversions and transfers between connected accounts. For a UK company, use Companies House records to confirm the legal entity, officers, filings, charges and insolvency information; public records support identity checks but do not replace private transaction-level evidence.
Illustrative reconciliation
The following numbers are illustrative, not a real company or transaction.
| Step | Illustrative annual amount | Question |
|---|---|---|
| Dashboard ARR | £120,000 | Which configuration produced it? |
| Less recurring discounts | −£9,600 | Were discounts included in the headline? |
| Less persistently unpaid subscriptions | −£6,000 | How long have accounts been past due? |
| Less refunds and disputes | −£3,200 | Are these one-off or recurring by cohort? |
| Cash-equivalent recurring base | £101,200 | Does this match processor and bank evidence? |
| Less direct payment fees | −£3,036 | What fee mix applies after transfer? |
| Illustrative cash after direct payment fees | £98,164 | What operating costs still remain? |
The exercise does not prove the business is worth £98,164. Hosting, support, contractors, software licences, taxes, customer-acquisition costs and the buyer’s own labour still sit below that line. It shows why valuing the business on £120,000 without reconciliation could produce a false sense of precision.
Test the quality, not only the quantity, of revenue
Even fully collected recurring revenue can be fragile. Segment the evidence so one attractive total does not hide concentration or deterioration.
- Customer concentration: calculate the share of ARR from the largest customer and top five customers.
- Cohort retention: compare customers who started in the same month or quarter, separating logo retention from revenue retention.
- Contract term: distinguish cancellable monthly subscriptions from committed annual contracts.
- Discount dependency: identify customers whose current price ends soon.
- Product mix: separate recurring software access from services, implementation and usage revenue.
- Payment health: measure failed-payment recovery, refunds and disputes by month.
- Related parties: flag revenue from the founder, connected companies, employees or test accounts.
- Transfer risk: check whether contracts, domains, processor accounts and licences can legally and practically move to the buyer.
Protect customer data during due diligence
A buyer does not need unrestricted access to personal data on day one. Begin with redacted or pseudonymised customer-level exports, stable anonymous identifiers and totals that can be independently recomputed. Reveal identifiable data only when lawful, necessary and protected by the transaction process.
HMRC states that business records must be accurate, complete and readable, and notes that statements and duplicate invoices may be needed when records are missing. In a sale process, poor record quality is not merely an administrative inconvenience: it limits the buyer’s ability to verify earnings and may increase the price adjustment or delay completion.
What the buyer should pay to verify
Due diligence has costs. Budget for an accountant to test revenue and tax treatment, a solicitor to review customer contracts and transfer terms, and technical support to validate billing exports and data integrity. A small acquisition may not justify a full quality-of-earnings report, but it still needs proportionate evidence.
- Low-risk, low-value purchase: sample the largest customers, recent cohorts and several months of settlements.
- Material acquisition: reconcile the full population and obtain professional accounting, legal and technical review.
- High concentration or weak records: consider an earn-out, escrow holdback, price adjustment or walking away.
The seller should also allow time to prepare clean exports, explain metric settings and answer exceptions. If the evidence can only be viewed through the seller’s curated screenshots, treat that as a limitation, not confirmation.
Who this approach suits—and who should avoid the deal
This reconciliation suits buyers considering an operating SaaS business where recurring revenue materially supports the price. It is particularly important when the business has annual prepayments, multiple currencies, heavy discounts, usage billing or a mix of software and services.
A buyer should pause or avoid the deal if the seller cannot provide customer-level billing exports, payment settlements and bank evidence; refuses to define ARR; counts free, test or long-unpaid accounts; or relies on projected customers as though they already exist.
There are realistic alternatives. Buy only the code and brand without paying for unverified revenue. Negotiate a lower upfront price with later payments tied to retained customers. Build a smaller replacement product. Or do nothing until the records improve. Walking away preserves capital and may be the best commercial outcome.
A decision rule before you value the business
Do not apply a valuation multiple until you can reproduce the recurring-revenue number from underlying records and explain the difference between billed value, recognised revenue and cash collected. Then adjust for concentration, churn, discounts, disputes, fees and transfer risk.
If you are also reviewing a low opening bid, use the related MaryChuks guide on pricing the full transfer cost before you bid. A small bid and a large ARR claim can both distract from the same question: what verifiable, transferable economic value will the buyer actually receive?
Explore opportunities without skipping verification
MOC Marketplace is part of the MaryChuks.com business ecosystem. Its live gateway can help buyers discover digital-business opportunities, but a displayed card, badge or revenue figure is not a substitute for independent due diligence or a guarantee that an asset will suit you.
Explore the general MOC Marketplace gateway, then apply the reconciliation steps in this guide before making an offer or placing a bid.
Primary sources
- Stripe Billing Analytics: metrics, definitions and exports
- Stripe: disputes and chargeback mechanics
- IFRS Foundation: IFRS 15 Revenue from Contracts with Customers
- GOV.UK: Get information about a company
- GOV.UK: Keeping your pay and tax records
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