The first issue our Project Manager faced at this growing company was around their manual high touch environment. Under ASC 605 this was manageable, but the complexity of high value, long term contracts coupled with anticipated company growth, would exacerbate current issues under ASC 606. The team decided to look further into automation for ASC 606 common, repeatable data entry type transactions.
The choice to automate systems to manage ASC 606
Q: How much of your revenue is affected by ASC 606?
The revenue affected by 606 is actually a relatively small percentage of our overall revenue. Say 10 to 20%. The problem is, it’s in an area of our business that we expect to grow significantly. Traditionally we were a hardware and services company. As we have grown, and expect to grow, much of that is in the software space. The problem with the software component is that it is high touch, a small percentage of revenue but a lot of work. And the percentage is only going to grow.
Q: How did ASC 606 impact your business from a revenue point of view?
Originally we didn’t know what the impact of 606 was. After some research and consulting dollars, we understood it was going to affect the software aspect of our business. Not so much the hardware. 606 is going to pull forward software revenues and affect some of the installation work on big projects. That’s the biggest revenue impact but also commissions and some other minor ones too.
“The appetite to redo the process wasn’t as great for the business, as it is now …You have to comply with 606 and we couldn’t sustain this without some automation.”
Q: Had ASC 606 not come around, would you have automated?
Without moving to RevStream (their choice for automation), 606, I think, just exacerbated the different ways we sell the product. There is a strong case for automation. We would have automated, just not as quickly. We have, over the last 5 years, brought in companies to see what different offerings they had for revenue recognition. But the appetite to redo the process wasn’t as great, for the business, as it is now. Now, we have to. You don’t have a choice. You have to comply with 606 and we couldn’t sustain this without some automation. Our existing tool would have needed to be substantially tweaked in order to do that. Our thought was, would you rather spend the resources on modifying an existing, old tool or spend the resources to bring in a tool that is state of the art, or at least more state of the art than what we currently use.
One of the times we made an acquisition that was going to double our revenue, that was tough to integrate. Now, if that happens again, we can expand quickly by having everything in the cloud. We’ve had revenue coming from multiple tools and piecing it together. With RevStream we’re most excited about about having the revenue all in one tool.
Continue the story:
Increasing contract complexity
Download the full series of Issues Revenue Management Teams Face – ASC 606
