It’s Best to Have a Single System of Record for Revenue Recognition – 4th in the Series

By Mike Morini

There are a lot of different sources that one can use for information. The internet has enabled a tremendous explosion in the accumulation and sharing of data. Most Google or Bing searches produce many millions of results within just fractions of a second. While the technology to pull this off is truly amazing, my point here is that getting a lot of data about any particular subject is really incredibly easy. One of the major challenges associated with having a huge amount of available data has become how to get to useful information. Data might be incomplete or stale and in need of updating. It might be irrelevant or just anecdotal perspective and opinion rather than fact. Discerning “truth” often requires a significant effort just to parse and structure data.

One of the worst things that can happen within any enterprise is to have two or more different versions of some very critical business information without being able to tell which version is correct. To determine the cash balance in a primary business bank account, one could refer to a colleague’s estimate based on yesterday’s balance, perhaps examine today’s bank statement, or just go online to the bank’s self service portal for the current balance. To determine the prior two years of revenue, one could survey the colleagues that worked the prior year, ask customers what they bought, or go to the repository of financial data produced through revenue recognition.  Choose incomplete, stale, and irrelevant data from bad sources or get the “truth” from the system of record.

Let’s think about the typical enterprise employing a recurring revenue business model. Their revenue recognition processes probably use more than one source for their solutions. They may have multiple desktop spreadsheets and fragile macros to load, manipulate, and report data that probably lacks control and integrity. Perhaps they also have invested in a home-grown legacy solution requiring extensive ongoing rework to deliver a nominal solution for yesterday’s opportunities. Maybe these solutions are used in conjunction with an expensive-to-implement on-premise solution, where they pay maintenance fees to hopefully keep up with their competition.

A single system of record is defined by its ability to recognize revenue generated by a variety of innovative recurring revenue business models, according to accounting standards and principles, and then using this transformed “truth” to report, analyze, and manage the enterprise revenue information, either directly and/or indirectly, as THE single system of record source to other systems. There is a degree of complexity not found in most other applications, and the impact on the enterprise, for good or bad, is significant.

Consider these examples of critical revenue application that are best served by a single system of record:

  • The enterprise financial statement or report, e.g. a P&L for monthly, quarterly or annual SEC statements.
  • Internal business units and profit centers within a company, e.g. P&L’s consolidating to the company P&L.
  • Managing-to-objectives, employee incentives, e.g. sales commissions and performance bonuses.
  • Performance metrics based on revenue, e.g. sales and marketing costs per recurring revenue dollar.
  • Analyses for financial planning and forecasting, e.g. demand planning, sales forecasts, profit projections.
  • Business cases, revenue optimization analyses, e.g. product strategies, market strategies, investments.

The enterprise cannot effectively function when each of these applications uses different values provided by different sources or different mixes of sources. Given the complexity and the impact of revenue recognition on the integrity of reporting, analyzing, and managing revenues within an enterprise, it is clearly best to have a single, comprehensive system of record for revenue recognition, preferably one provided by a billing platform that comprehends both the recurring revenue business model and the related accounting processes.

Let us know how your revenue recognition efforts are working for you!