Compliance

Article Dean Dorton

It’s the 21st century, and the digital economy is king. More importantly, it has fueled the rise of the subscription economy. If the statistics by Zuora Research are anything to go by, this trend is hardly surprising. Today’s consumers want flexibility and variety: think Netflix, Amazon, and Spotify. Everyone wants choices.

Too busy to shop? You can have your groceries delivered to you. Want to learn a foreign language? Sign up for classes at hundreds of reputable online schools. How about movies? If you want choices, it’s Amazon Prime or Netflix hands down. The digitization of business shows no signs of stopping. In fact, Gartner predicts that more than 80% of software providers will switch to subscription-based business models by 2020.
So, what does this have to do with ASC 606 compliance? Plenty: subscription-based businesses will be most affected by the new law. So, it’s imperative that private (and public) companies take immediate steps to comply with the new law.

The 5 Important Steps In Complying With ASC 606

  • Determine the terms of the contract with the customer. Contractual obligations must be clearly stated i.e. payment terms and transfer of control clearly defined. Here, there is a further complexity for SaaS or cloud-based businesses: they must decide whether contractual upgrades or downgrades constitute modifications or new agreements.
  • Identify the performance obligations in the contract. These obligations must be accounted for separately. Goods and services are considered distinct if customers can benefit from them separately.
  • Determine the transaction price. This is simply the amount the consumer agrees to pay in exchange for goods and services. The complexity arises, however, when businesses offer recurring discounts, rebates, or incentives. In this step, variable considerations must be included in the transaction price.
  • Allocate the transaction price. In this step, you’ll take the transaction price in #3 and allocate them to the separate performance obligations.
  • Recognize revenue when the performance obligation has been satisfied. Under ASC606, subscription companies must decide whether they will recognize revenue up-front or over time.

Why Companies Must Start The Process Now

#1 Compliance May Involve Many Complexities

Many industries will be affected by the new law, including telecommunications, construction, information technology, and automotive. Businesses must decide how they will handle warranties, usage-based pricing, and multiple contractual variables. These considerations certainly complicate the subscription billing process. Additionally, revenue from unrealized (whether full or partial) performance obligations must be reported as “deferred.”

Another complication arises when sales teams earn commissions for obtaining contracts. Under the new law, businesses can no longer expense sales commissions; they must be amortized (a form of capitalization).

#2 Businesses Must Handle Larger Data Volumes Under The Law 

According to Ventana Research, 68% of businesses use spreadsheets exclusively to manage their sales compensation and commission process. However, an overwhelming 61% admit that spreadsheets are inefficient and prone to errors.

In light of this, manual processes will prove inadequate in handling the large data volumes under the new law. In fact, commission amortization is a data-intensive two-step process. First, commission costs must be determined for each “distinct” performance obligation. Here, commissions earned by every member of a sales team must be accounted for.

Second, the commission cost must be recognized with the related revenue. This is to ensure that the commission amortization and revenue recognition schedules match.

#3 Revenue Recognition Errors Can Result In Decreased Investor Confidence

For SaaS businesses, the new law further complicates their relationship with investors. Venture capitalists may now dispense with using backlog disclosures as a primary metric of financial performance. Due to the variables in a SaaS contract, they may choose to focus on ASC 606 ARR (Annual Recurring Revenue) disclosures instead. So, revenue recognition errors and/or non-compliance with ASC 606 are likely to reflect poorly on businesses.

#4 Non-compliance Can Delay IPOs

According to ASC 606, private companies and emerging growth companies have until January 2019 to comply with the law. However, public companies that delay compliance may find themselves at a disadvantage when it comes to their IPO (Initial Public Offering) launches. In terms of market viability, the grace period for emerging companies is illusory at best. It is far better to comply, sooner rather than later.
For you, the process need not be an overwhelming one. With Sage Intacct, you get automated efficiency and thorough compliance with ASC 606, all without the pain of spreadsheet management. So, contact us: you have nothing to lose and everything to gain from simplified perfection.

Are You ASC 606 Ready?

Explore more on the guidelines to ASC 606 readiness and how to business risks through compliance in our special edition eBook:

6 Rules for ASC 606 Readiness.

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Article Dean Dorton

When your SaaS business is trying to stay on top of all that added work that comes with rapid growth, along with staying compliant with the new ASC 606 regulations, the right financial management software can make all the difference. If you’re still using an on-premises system, limited in its capabilities to handle your financials, you’ll want to read on.

Sage Intacct, a cloud-based financial management solution, offers automation, generous options, customizations, and the snapshot reporting that SaaS companies need, in all the right places. It delivers what SaaS businesses need most for complex revenue recognition, reallocation, billing, renewals and performance metrics.

Contract and Subscription Billing

Sage Intacct’s built-in usage-based and tiered pricing features within their billing module, is ideal for SaaS. Whether your billing is over regularly-timed periods or nonlinear, you control your billing options in the way that fits your unique business.

  • Sage Intacct has an automatic renewals feature that is designed to trigger contracts approaching their end dates, which means renewal processes require less manual labor and run more smoothly.
  • Automated billing schedule options can be set up to fit a wide range of unique contracts, whether billing happens monthly, yearly, or in a non-linear way with milestones.

Contract Revenue Management

Sage Intacct’s Contract Revenue Management module is the first to offer automated solutions to the ASC 606 and IFRS 15 guidelines. SaaS companies can experience faster, more accurate revenue recognition, even with the new revenue reallocation regulations:

  • Sage Intacct handles revenue reallocation automatically– even for closed periods, so compliance is faster, easier and more accurate.
  • View revenue details right in the contract, with side-by-side comparisons of revenues and expenses under the old and new guidelines for at-a-glance comparisons.

Reporting and Dashboards

Because SaaS growth happens fast, growth strategy needs to happen even faster. Sage Intacct’s reporting features are designed for stakeholders and decision-makers who need to see current numbers, in a readily accessible way:

  • Stakeholders and decision-makers see real-time accurate views into profitability and performance with customized reporting options on-screen and in print.
  • Get cloud-accurate KPIs for SaaS metrics on Sage Intacct’s Digital Board Book, like churn, customer lifetime values, annual or monthly recurring revenue, and customer acquisition costs – all the metrics you need, when you need them.

Whether you’re just noticing your financials becoming harder to manage lately, or you’ve been thinking about making the move to the cloud as a logical next step in your growth, contact us.

Why are SaaS companies moving off legacy systems?

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Article Dean Dorton

Change is inevitable as your company expands, and if you’re still using Quickbooks for your financials, it might be time to ask yourself whether it’s still the best fit for navigating growth’s tricky course. Here are 5 signs that your company is treading water with outdated systems and processes.

1. You’re having trouble remembering when you last updated your systems.

If you’re using outdated software that has since released new versions, or sticking with an older system because it’s what you know, you may be doing your business more harm than good. Running your financials on outdated software sets your business up for system reliability and data accuracy risks.

2. Your systems don’t integrate.

If Quickbooks isn’t integrating with the other software solutions you use, your teams are doing more work than they need to, while also risking data accuracy. Re-keying data into your other systems invites data errors. Relying on spreadsheets for critical reporting also invites data errors and consumes your team’s time. Trudging through tedious workarounds slows productivity too. These are all unnecessary risks your company can avoid with integration-based automation.

3. You can’t track your business like you once could.

The data you’ve always worked with in the past may not be the data you need now. Fast-growing businesses also have fast-changing metrics. However, on-premises systems can’t produce inventories, marketing conditions, or location and entity performance metrics with the speed or accuracy the way a cloud-based solution can.

4. Growth and compliance demands seem harder and harder to meet.

Modern businesses – especially subscription-based businesses, need to meet modern customer demands. With the increasingly complex product or subscription models come more complicated customer tracking and revenue recognition that meets the new ASC 606 and IFRS 15 compliance requirements. Outdated on-premises Quickbooks versions just can’t meet those demands without headaches, costly software retrofits, or less-than-perfect workarounds.

5. Your financial processes aren’t adequately scaling to your company’s financial needs.

It’s only a matter of time until your growing company needs something from your Quickbooks software that on-premises software just can’t do. Growing companies – especially fast-growing companies need to work in the cloud for growth tasks like adding new entities, or locations, quickly performing global consolidations, or converting multiple currencies.

A cloud-based financial management system like Sage Intacct supports today’s growing businesses:

  • Automatic, behind-the-scenes updates and maintenance happen for reliability and performance confidence.
  • Seamless integration with other best-in-class cloud-based solutions ensures data accuracy, and team collaboration to give fast answers to potential and existing customers, and to streamline accounting processes and project management.
  • Real-time 24/7 updated visibility into key metrics and reporting on your personal dashboard means no waiting or guesswork when it comes strategic data analysis.
  • ASC 606 and IFRS 15 compliant software makes revenue allocations for contracts faster, easier and more automated.
  • Growth-focused features speed new entity set-up, GL entries, currency conversions, and global consolidations.
View our free on-demand webinar “You’ve Outgrown QuickBooks, How Do You Make the Switch?” to learn how Peter Nesbitt, Director of Finance at Bit.ly, the category leader in link management, managed their spectacular growth by moving from QuickBooks to Sage Intacct.
Think You’ve Outgrown QuickBooks?
View our free on-demand webinar “You’ve Outgrown QuickBooks, How Do You Make the Switch?” to learn how Peter Nesbitt, Director of Finance at Bit.ly, the category leader in link management, managed their spectacular growth by moving from QuickBooks to Sage Intacct.

Article Dean Dorton

Private companies that offer subscriptions and contracts might not have to account for properly allocated revenues and amortized expenses until next year, but to be compliant for next year, the planning starts now.

This is because any contracts starting up today that will be active in 2019 will also require ASC 606 compliance.

With so many allocation variables muddling the new compliance standards, knowing how to modify your processes can reduce errors, save your financial department undue headaches, and help your company avoid the risks associated with non-compliance, come 2019.

Companies that handle contracts and subscriptions expected to adhere to the ASC 606 compliance guidelines will need to modify their financial processes with these 5 steps to stay compliant:

1) Ensure contract and collectability threshold transparency – Multiple related contract agreements may require recognition as one contract, and contract collectability requires tracking, with revenue being recognized as it meets the collectability threshold. Companies need an accounting system designed for automated contract management to speed and simplify the new, in-depth tracking processes required for compliance.

2) Outline performance obligations for uniformity and clarity – Goods or services must be shown as distinct, or as distinct within a contract. An accounting system with contract management automation is critical to help identify, track, flag and break out performance obligations, to be allocated and recognized at the right time.

3) Identify variable pricing terms – Refunds, incentives, discounts, and flexible financing all impact revenue valuations under the new ASC 606 guidelines. Use consistent methods, and automation wherever possible to flag contracts with non-standard terms.

4) Allocate part of the transaction price to performance obligations –You must identify your performance obligation based on a relative standalone price. For companies that still use spreadsheets, allocating this pricing on a per-contract basis leaves a large margin for error and countless hours of manual work. Companies that must account represent performance obligations within contracts need an accounting system that takes manual spreadsheets out of the equation to avoid serious allocation errors

5) Properly recognize revenue – Under the new ASC 606 rules, revenue needs to be tracked and recognized as the good or service is consumed. Companies need automated systems that synchronize billing and revenue recognition to work in time, so as customers consume goods or services, the system is properly tracking and recognizing revenues and amortized expenses.

With so many changes coming, companies can’t rely on old, outdated systems without inviting the risks of task overwhelm, massive allocation errors, and hours of retracing steps through complicated contracts.

Sage Intacct, a best-in-class financial management solution is designed to be ASC 606 compliance-ready, with deep automation to detail out contracts, track revenues easily, break out expenses over time, and eliminate the need for error-prone spreadsheets.

Reach out to us for more information. Let’s help you find the right solution to prepare your business for what lies ahead.

Need More Information?

Discover the basic guidelines of ASC 606 compliance and try the next steps your company needs to take to prevent any risks.

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Article Dean Dorton

Complex by nature, subscription-based businesses have a lot on their plates when it comes to revenue recognition. For them, complicated customer contracts paired with the new ASC 606 and IFRS 15 guidelines pile on mountains of work and create legendary reallocation headaches for SaaS companies everywhere.

This is because SaaS businesses have more complicated revenue recognition requirements to follow, not just for new contracts, but for existing ones as well. For subscription-based businesses, add-on’s, renewals, and complex subscription modifications, pauses, and cancellations, all add into the revenue recognition scope.

This means a lot more work to track varying revenues in order for financial teams to keep the company compliant, and a lot more work as a result of all the new subscriptions coming in.

Subscription-based businesses need a best-in-class financial management solution like Sage Intacct, that takes compliance seriously, to offer strong revenue recognition support for SaaS companies, to help them meet the ever-changing accounting compliance guidelines.

Sage Intacct speeds, automates and simplifies compliance in four ways:

1) Sage Intacct’s ASC 606 and IFRS 15 compliance built into the software. This helps SaaS companies manage their contracts, and control deferred revenue transactions more effectively in order to adhere to new recognition, reallocation, and expense amortization changes.

2) Customizable dashboards with real-time visibility offer deep, drill-down options showcasing SaaS metrics to see revenue transactions, and data related to changing subscriptions and renewals to calculate the impact they have on reporting.

3) Deep automation and product options mean Sage Intacct picks up where spreadsheets leave off. All in one place, SaaS teams can speed month-end closings, simplify reallocations, track subscriptions and make changes, simplify and streamline the auditing process, and strengthen compliance to adhere to the new guidelines more easily.

4) Sage Intacct uses VSOE and full FAS 52 support so SaaS companies can stay current with ever-changing accounting rules. This means Sage Intacct users always have the most up-to-date accounting guidelines at work in the software solutions, so they can feel confident in their financial compliance.

When you consider the volume of SaaS industry challenges and then add in rapid growth, it can almost feel like too much to handle.  A financial management tool with the right kind of options, however, can support SaaS teams, and ease the pains of subscription complexities.

Put the aspirin away and contact us instead. We want to help you find the best management solution to free you so you can focus on your customers and your growth.

In the Meantime

If you’re a SaaS company and aren’t aware of the risks that come with not complying with the new ASC 606 guidelines, check out our free eBook.

why compliance can’t wait

Article Dean Dorton

SaaS companies are unique in their complexities.

In every stage of its growth, your SaaS company metrics focus should evolve to support success.  That means your financial system must come with some pretty fast footwork if it’s going to offer the flexibility and depth required to scale with your business for the long haul.

Companies just starting up are busy getting the word out about their business. They are pounding the internet pavement to get the subscriptions they need to build momentum. These companies need complex metrics relating to CRM, conversion rates, key leads, and website visits. They feel the squeeze between payroll, expenses, and A/P and A/R to keep customer relationships tight, and the business strong.

For early-stage SaaS with a solid subscription base, things start to get more complex as they keep a close eye on customer acquisition costs as well as monthly and recurring revenues. They gain their footing with new business and start hustling down the field, only to feel customer churn nipping at their heels.

SaaS businesses in the rapid growth stage have their roots and need to keep up with success while adjusting to their fast-growing size. As they start to build add-on’s and subscription modification options, they need to track their upsell, cross-sell efficacy, revenue recognition, and customer lifetime values, to name a few.

Finally, the SaaS public companies out there coming up on the end zone have to focus on metrics with even more complexity. These companies are looking at compliance on a massive scale, sales and quota forecasting, greater depth into market analysis, and in customer and revenue growth in year over year, and month over month break-outs.

With such a wide range of metrics that morph and fluctuate in priority through the many stages of industry-specific growth, SaaS companies need a system that can handle these changes quickly and effectively.

These companies need a flexible, yet powerful cloud-based financial management system like Sage Intacct. With Intacct, SaaS companies can get fast answers, and relief in smoother processes:

  • Deep, yet customized broad-scale automation to handle A/P, A/R transactions, consolidations, month-end closings and much more, no matter how big or small the business.
  • Flawless compliance with ASC 606 and IFRS 15 regulations specific to SaaS companies.
  • Real-time, customizable dashboards breaking out only the metrics decision-makers and stakeholders need to quickly build strategies and grow the business.
  • Lock-tight security and seamless integration with other best-in-class solutions that SaaS companies need to keep business moving along at a steady clip.

Whether your growing SaaS company is raring to go at the 50-yard line or coming up fast on the end zone, you can reach your 2018 goals with Sage Intacct’s SaaS business-ready solutions.

Download our FREE whitepaper: 7 Reasons to Move to Cloud Financials Now