Every company relies on revenue for success. Whether you run a tech firm, a grocery store or a manufacturing operation, your revenue determines what you can afford to spend, and it leads to profit after expenses. Trusting your revenue and recognizing it in the appropriate period is the only way to get a true determination of your business performance.
Calculating revenue can look different for every company because businesses earn money in various ways. Some companies rely on recurring revenue to grow, and this scenario is where revenue recognition comes in. When traditional accounting processes don’t support your needs for revenue recognition, turn to Compass East.
What Is Revenue Recognition?
As an accepted accounting principle, revenue recognition is a process that identifies specific conditions for recognizing revenue and determines how to account for that revenue.
This principle requires accounting for revenue when it’s earned and realized, rather than when the cash is received. Accounting Standards Codification (ASC) 606 is the revenue recognition standard that provides general guidelines for recognizing revenue from customer contracts.
ASC 606 includes five essential steps:
- Identify the consumer contract.
- Recognize all contractual performance obligations.
- Determine the price for the transaction.
- Allocate this price to the performance obligations.
- Recognize revenue when the performance obligations are satisfied.
Revenue recognition is valuable to companies with recurring revenue, such as those utilizing subscription models or offering rental services. Many of these companies exist in the technology industry, but they’re not limited to this sector. Examples include:
- Software as a Service (SaaS)
- Professional services with annual contracts
- Web hosting
- Cloud services
Why Is Revenue Recognition Valuable?
Recurring revenue businesses have different contract structures with their customers, such as annually, quarterly or multi-year contracts. Traditional accounting methods often don’t account for these contract details upfront or recognize a year’s worth of revenue in a single month.
This approach affects cash flow reports because it claims that all cash flowed in during a single month rather than over 12 months. It can be challenging to track monthly expenses associated with delivering a service if most months have $0 in revenue.
Your business’s success is all about revenue, and if you can’t track it correctly, you can’t gauge company value or performance. Revenue recognition addresses the unique conditions of your customer contracts to gain a more accurate record of revenue each month.
Our Revenue Recognition Solutions
At Compass East, our revenue recognition services develop company processes for more accurate revenue tracking. We build an internal contract management tool or integrate software to properly recognize revenue each month. The tool we integrate into your invoicing workflow will create the necessary procedures for consistency and accuracy.
If you run a recurring revenue business, your customer contracts will likely vary from those of other companies. Our team of advisors takes a custom approach to tool or software integration, so your new processes reflect your contract management needs. Whether you work with annual contracts, multi-year agreements or a different schedule, our solutions meet your needs.
The Advantages of Revenue Recognition Services
Our revenue recognition services address the nuances of recurring revenue. With invoicing schedule development, you can introduce and improve:
- Accuracy: Traditional accounting methods likely weren’t addressing your contract management needs, leading to inaccurate revenue reports. Our solutions portray a more precise picture of your revenue to give you a better understanding of your success.
- Consistency: SaaS and management tools introduce a workflow you can repeat again and again. This consistency makes your financial processes easier to manage, and it can save you time without sacrificing accuracy.
- Efficiency: Monthly financial processes are essential, but they require company resources that you can put toward higher growth initiatives. With an efficient revenue recognition procedure, you can quickly meet your financial needs and focus on larger projects.
- Growth: When your company has a more accurate view of monthly income, you can make more effective decisions for business growth. Whether you take on more clients or modify your budget, revenue recognition can help you reorganize for excellent results.
With the many advantages of our revenue recognition solutions, it’s worth taking the next step. Outsourcing your revenue recognition needs to Compass East can help you reap the benefits of contract management without hiring an in-house team to modify your workflow.
You can use our revenue recognition solutions in conjunction with our many other financial services. With a firmer grasp of your recurring revenue, you can benefit from KPI development and dashboards or cash flow management. We can also support you with 1099 management and audit preparation.
Why Choose Compass East for Revenue Recognition Solutions?
Compass East is a scalable financial operation that supports high-growth companies. We implement technology ecosystems, a complete financial and accounting team and dynamic reporting processes that create growth strategies for our clients.
Our team focuses on your unique needs and builds your business from the bottom up. We clean up your existing processes and fill in the gaps with technology solutions and expert guidance. With our services, you can optimize your company for more significant growth over time.
The Compass East team consists of financial professionals from a range of backgrounds. Our advisors have in-depth understanding of auditing, forecasting, reporting and more, which allows us to provide forward-looking services that support your success.
Your high-growth business has multiple projects and processes it needs to track, and basic financial procedures shouldn’t have to be one of them. If you deal with recurring revenue, traditional accounting may not record your revenue correctly. Count on Compass East to get it right.