Online education is no longer just for schooling. It’s estimated that 49% of people across the world have completed some form of online learning. Moreover, the industry is expected to keep growing, reaching a market volume of $257 billion by 2028. However, with great income comes great challenges.
Thankfully, with the assistance of an accounting tool like QuickBooks, and the guidance of a CPA, you can easily navigate financial management for online education programs and software.
How to Manage Diverse Revenue Streams
Unlike offline education, this sector generates most of its income from digital assets. Whether subscription costs, pay-per-course purchases, examination fees, or value-added services like consulting, the bottom line is that your money comes from a variety of sources.
Revenue recognition in online education
It’s important to identify where your revenue comes from. For example, subscription-based courses or software are a great way to generate predictable income. However, they are considered deferred revenue. In accounting terms, your business can only recognize a daily fraction of a subscription fee. This holds true for a monthly, annual, or per-course subscription. The remainder of the income is therefore deferred until the end of the subscription period. Although there is an exception. In the event of course or software cancelation with a no-refund policy, deferred revenue changes to earned or accrued income.
On the other hand, you might offer the choice to purchase a course or service once-off. This is considered an immediate sale, in which the product or service is delivered right after purchase. When the user decides to make use of the purchase has no impact on this.
An accrual will be tracked in your current accounting period, whereas deferred income is pushed into the next period.
Different revenue streams and revenue recognition require stringent financial management for online education. However, with the right software, this shouldn’t pose a problem.
Ensure your accounting software is up to the task
When it comes to managing diverse income streams, it’s a good idea to simplify your financial management without sacrificing accuracy. The ideal way to do this is by streamlining your financial accounts, and automating as many aspects as possible.
QuickBooks allows you to manage multiple income streams, including comparing them to see which revenue source is your most profitable. By allocating each type of income as a separate company file, you can track as many different revenue streams as you would like, as long as they are all registered under the same business entity.
Essentially, the software allows you to:
- Generate reports for analytics (including profit and loss statements, balance sheets, cash flow, and expenses).
- Automate invoicing (with the option to customize your invoices and send automated payment reminders).
- Automate payments and billing.
- Connect directly to your bank account.
- Track expenses.
With the added help of an account, you can take financial management for online education to the next level. For example, a CPA can assist you with IFRS 15, which outlines revenue recognition. This is particularly important for companies that also make use of in-course advertising or share sponsored content.
A CPA can also be invaluable if you decide to license your software or courses. Not only do licensing agreements include fee negotiations and payment structures, but they may also have tax implications.
In addition to handling revenue, there’s an equally important aspect of financial management for online education: tracking your expenses.
Expense Tracking for Digital Resources
Expense tracking is necessary for maintaining a healthy cash flow and overall effective financial management for online education. However, just as your income sources can be diverse, your expenses can also vary.
Depending on the nature of your business, typical expenses can include platform costs, the amount you spend on mobile app development or third-party integrations, content fees, or the cost of data security and compliance. In fact, according to a recent study, in 2022 it cost an average of $21,475 to create an hour’s worth of online educational content.
Accurate expense tracking is essential. Through digitization, you can easily access the necessary data in real-time, leading to improved organization, better security, and increased efficiency.
To do this, you don’t need to invest in expense-tracking software. You do need accounting software that can do it for you.
QuickBooks for expense tracking
QuickBooks’ connectivity and integration abilities make it the ideal software for tracking your expenses. By connecting to your bank accounts, credit cards, or platforms like PayPal, it can import and categorize your expenses. For added simplicity, you can use the QuickBooks app to photograph and save receipts, which are matched to an existing transaction.
For more complex expense tracking, QuickBooks allows you to integrate various other expense management apps.
Importantly, the software can also auto-sort your expenses into tax categories and link these to your tax forms. This makes it easy for you and your accountant to ensure tax compliance, which can be particularly tricky for online sales or educational software.
The Tax Implications of Online Education
Generally, online education is subject to sales tax. Sales taxes are complicated because there is no national-level tax. Instead, these taxes are determined and controlled on a state level. It’s worth noting that Alaska, Delaware, Oregon, Montana and New Hampshire do not levy sales tax.
For the other states, sales tax rates can vary depending on where you and your users are located, along with your sales tax nexus.
However, some products and services may not be subjected to sales tax, regardless of your state. It all depends on whether your revenue is generated through educational services or digital services.
Educational services usually refer to those in the primary and secondary education sectors. They do not cover courses taken for recreational or personal development. A benefit of having your services classified as educational is that they’re often tax-exempt. However, any physical materials accompanying educational services are taxable.
Alternatively, digital services (or products) are subject to taxation. These include:
- Cloud-based software and as-a-service products, such as Software-as-a-Service (SaaS).
- Websites and site hosting services.
- Online courses, or e-learning materials for certain professional qualifications.
Taxation of digital services can also depend on automation and interaction. For example, presenting a live course or seminar in real-time is not subject to sales tax. Nor are courses in which a user is evaluated by a human instructor.
In short, it’s a complicated aspect of taxation.
A simple solution
Using your customer data and business information, QuickBooks can help you with financial management for online education by automatically generating and filing your sales tax.
A CPA can further help you navigate the many considerations of this tax. Importantly, accountants keep track of the tax laws that apply to sales per state. They will also be able to advise you on tax registration, as well as how to record and correctly file your sales tax returns. Furthermore, an accountant can advise you on a suitable financial strategy for further business growth.
For online education providers, access to advanced accounting software and professional financial advice is key to navigating the complexities of the industry. With a robust accounting tool like QuickBooks, and the invaluable role of a CPA in making strategic financial decisions and ensuring compliance, you’ll be able to drive business growth in the online education sector.
To experience how this dynamic partnership can benefit you, schedule a Discovery Call with one of our CPAs.
The information presented in this blog article is provided for informational purposes only. The information does not constitute legal, accounting, tax advice, or other professional services. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability of the information contained herein. Use the information at your own risk. We disclaim all liability for any actions taken or not taken based on the contents of this blog. The use or interpretation of this information is solely at your discretion. For full guidance, consult with qualified professionals in the relevant fields.
