By Sarah Dryden, CPA, Senior Audit Manager
Is revenue the driver of your company’s business? Do your investors care more about the top line than the bottom line? For most technology companies I work with, revenue is the key driver of the business and investors care much less about net income than they do about net revenues. It is for this reason that I’m recommending that you write a revenue recognition policy. If you have no other policy in place, this is the policy to start with.
Here’s a suggested road map to get started:
- Talk with your sales department – understand all forms of revenue your company is generating. Examples: hardware, software, consulting services, maintenance, support, extended warranties, trainings.
- Research GAAP literature – understand where each form of revenue you generate fits into the GAAP framework. I recommend using Revenue Recognition Guide, 2010, by Scott Taub, as a starting point.
- Talk with your CPA – if there are grey areas where you need more guidance, pick up the phone!
- Draft your policy – document all forms of revenue you generate and how it should be recognized in accordance with GAAP.
Once you finish this process, you may find that some of the processes and procedures your accounting department, sales department, or even operations is using now need to be changed to allow your company to properly recognize revenues.
If you haven’t done this exercise, I guarantee you that it will be worth it in the long run.