New ASC 606 rules aren’t far away, and professional services companies that fail to start adapting now will probably find themselves struggling when the implementation date gets closer.
For those who aren’t yet aware, or need a short primer: ASC 606 is part of a new roll-out of GAAP rules that change the way that certain companies—particularly professional services and software companies—recognize revenue from their contracts and their completed work. Be sure to check out our Revenue Recognition Hub for a little more information on the new regulations.
Of course, having a ASC 606-ready system in place before 2018 is your first priority—simply put, you need to be ready to comply with the new rules. That said, there are some ways to exploit the ASC 606 changeover to actually set your business up for more efficiency and profitability moving forward.
Your accounting software must be ASC 606 ready
Any professional services organization needs to be backed up by an intelligent accounting system that enables them to set up reliable systems for creating contracts, navigating relationships with clients, and then recognizing revenue as work gets completed. Because ASC 606 changes the way that contracts need to be created, and how companies declare the work as finished, it’s absolutely critical to ensure that you can simply enter the details into an accounting software suite and let it handle the rest. Otherwise, you’ll be spending an inordinate amount of time manually handling these workflows, which leaves you open to error.
NetSuite is one excellent solution, with support for all the outgoing regulations, such as SOP 97-2, and the capacity to transition to ASC 606 before the cutoff.
Take the opportunity to improve productivity
For professional services organizations, the task of a making a client happy is all about getting the work done with the maximum efficiency. The most amount of work for the least amount of money, in other words.
While you’re spending time creating new workflows to deal with ASC 606, you might as well spend time figuring out ways to make processes more efficient. Remember: you want to reduce the time your best employees spend on any non-billable task, such as reporting their hours, calculating costs, fleshing out contracts, or even doing revenue recognition formulas.
For example, let’s say that you have someone currently on staff who manually prepares financial statements, regulatory reports, and reports for investors. Because these are critical documents, this person spends a good portion of their workweek ensuring they’re correct and compliant. If you can automate any of their work, that’s an increase in utilization. In fact, a recent Gartner report says that this kind of automation and reduce the cost of these processes by up to 30 percent.
It’s time to ditch spreadsheets
Spreadsheets are notorious among professional services companies for failing in any number of ways. One of the best ways to improve productivity is to figure out ways in which you can get the same work done without relying on outdated spreadsheet-based processes.
Why? First and foremost, spreadsheets are error-prone—because employees enter information in manually, there’s a high risk of small mistakes that can create major headaches later on. If there isn’t a strong reconciliation process in place, these errors can propagate to the point where you’re dealing with the negative effects of non-compliance with ASC 606 rules, however accidental.
But perhaps more important is that spreadsheets are often built atop custom formulas that only the author truly understands. If that person leaves the organization, it’s often difficult, if not impossible, for others to parse those obscure calculations. A professional services organization simply doesn’t have the time to spare when their key players (i.e. expensive workers) have better things to do.
To help better understand these issues, and how migrating to ASC 606 compliance can actually help create more efficiency within an organization, it’s likely time to step into the world of NetSuite. Even a 14-day free trial can help professional services organizations get a stronger handle on their ASC 606 migration, and will allow them to discover efficiency where there used to be outdated, overly complex, and time-consuming processes.
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