This question was posed by an anonymous Controller yesterday on Proformative: "Is there a revenue recognition software that is ideal for SMB's?"   As one of their Topic Experts, I provided a brief answer there, and wanted to expand on that further here.

While there are a number of industries with complex revenue recognition requirements, I think it’s safe to say that, in general, technology and software companies are the largest affected segment, as well as the most affected.  For these companies, the ability to scale quickly is often a critical business need.  Given that, a better way to state the question might be: “Is there a revenue recognition solution that will scale with our business, supporting the pricing and performance our company needs now and as our organization grows?”

One challenge for people in technology-related companies is that their expected capabilities are often set by expectations of upper mid-market or enterprise sized businesses in their industry.  These expectations can be a serious mismatch when the company’s current budget and/or transaction volumes fit what you would expect in the SMB market.  One of the main reasons to consider a revenue management solution is to meet the increased challenges and expectations that result from growth.  In this environment, what was easy to manage in a spreadsheet yesterday may quickly become unstable and unscalable.

My company has been offering revenue recognition applications for nearly five years.  Our customers span businesses from “early ramp” to large midsized organizations ($500M+). To the question’s point – yes, solutions are readily available which may be ideal for SMB’s.

 I had the opportunity to weigh in on another great question on Proformative this week, this one from a finance executive who's interviewing with a SaaS company and wanted a quick update.  His question was: "With all of the pronouncements coming out on software recognition, has there been any substantial changes to the basics, i.e. we would have a monthly subscription fee revenue (take full revenue in month they were charged and used the product) and any support and maintenance would be amortized over the contract period?"

Here's the brief answer that I provided there:

"Yes - most definitely.

EITF 08-1 impacts SaaS companies because it changes the prior guidance of EITF 00-21 from the Residual Method to the Relative Selling Price Method. The criteria for separating contracts into separate elements is also different under 08-1.

SaaS companies may find there are more elements to account for in transactions and they are required to have values for all elements, not just the undelivered elements. Because 08-1 is a recent accounting change, best practices are still evolving.

Companies may find that their current accounting system may not adequately address issues under the new guidance and may need to consider manual workarounds or changes to their accounting system and polices.

Good luck with your interview!"

While discussions related to IFRS (International Reporting Standards) unification with US GAAP continue to drag on, the joint FASB/IASB revised revenue recognition proposal is moving forward.  This specific effort will unify revenue recognition internationally and is slated to go into effect in 2015. 

2015 may seem comfortably far away for many companies.  However, public companies (or companies planning to go public) are required to maintain three years of historical records on the same accounting basis.  These companies will need to start almost immediately if they wish to track revenue by both sets of standards for the required three years. 

In addition, private companies in certain industries – including the technology and software industries – would be wise to review the impact of the FASB/IASB project now, and start planning.  For them, the old revenue standards of SOP 97.2 and EITF 08-01 will be going away, moving everyone closer to the 08-01 relative value allocation model for any Multi-Element Arrangement. 

One question that everyone should be asking is: Can my current accounting or ERP system handle complex revenue recognition requirements?

In general, ERP systems are built for broad markets and often lack specific vertical industry functionality such as complex revenue, billing and contract management.  This is why large ERP vendors nurture relationships with third party vendors who provide the complementary products that meet these vertical industry challenges.  And that’s exactly where Tensoft Revenue Cycle Management (RCM) fits into the picture. 

Tensoft RCM currently supports all of the technology industry related revenue standards, and will support the final new GAAP standards when they are finalized next year.   To help keep current with this changing environment, anyone can register on Tensoft’s Resource Center, where we provide access to white papers, articles and recorded webcasts such as "The FASB IASB Exposure Draft on Revenue from Contracts with Customers." We also regularly offer CPE-eligible online training and educational webcasts from industry thought leaders, and will notify you about these upcoming events if you’re interested. 

 While Tensoft RCM 5.5 isn't a major release, it does provide some important enhancements for many of our customers.  And, it's release provides me with an opportunity to discuss our release cycles.

Because Tensoft's products are web applications, delivery of updates is greatly simplified for our customers.  We use a phased approach to our releases, so customers can choose when they'd like to upgrade, at a time that's convenient to them.  For smaller private companies with a test environment, they can download the new version and test it themselves before rolling it out to their live environment.  Or, for larger companies - or for anyone who'd like some additional support - Tensoft can help with the upgrade.  It's a very individual decision and we leave it up to our customers.  

This flexible approach allows us to provide incremental updates to customers, as rapidly as once a quarter, if that's what they choose.  The bottom line is: we support customers according to their preferred schedule, with as little or as much support from us as they wish. 

 Exposed, then re-exposed - when will it end...?!  The joint revenue recognition project for FASB and the IASB will be hitting a significant milestone on 3/13/12 - the deadline for comments.  Coincidentally, Tensoft will be hosting a webcast on this topic that day, early enough for you to still get in your comments on the draft! 

Silicon Valley revenue recognition expert Jeffrey Werner will break down this topic, presenting practical, actionable information for attendees.  You may think that you'll have plenty of time to make the appropriate changes - or you may still think that these changes don't apply to your company.  Just in case, you may want to sit in on this timely and important webcast. 

Here's a quick preview of the agenda:

• Overview
• Scope, Timing and Status
• Five New Principles of Revenue Recognition
• Differences from Current US GAAP
• Implementation Guidance
• Effects of the Changes on Technology Companies 

For more information, and to register, just go to http://bit.ly/yBATpi, or contact me directly to register you.

And, if you're wondering how Tensoft's solution for complex revenue, billing and contract management can help you company make the required changes, please contact me, or Michael Chadwick. 

 If you haven't looked at what's new in revenue recognition software lately, you may be in for a surprise.  Tensoft Revenue Cycle Management (RCM) handles the thorniest complex revenue, contract and/or billing management issues for technology companies with ease – here’s a chance to see if it might be a good fit for your needs!

Just register on our Resource Center for access to this on-demand webinar, “Graduate From Spreadsheets to Tensoft Revenue Cycle Management (RCM),” recorded on 2/15/12. 

Besides an introduction to Tensoft RCM, this webinar addresses some of the key questions that technology companies must ask when they evaluate their needs:

Productivity: Duplicate data entry can introduce errors and sap company resources. How can you find the right systems and processes to help your company speed revenue workflows?

Streamlining Revenue: Auditable and traceable systems enabling consistent revenue recognition. How important is improving the quality and velocity of your revenue while lowering audit costs?

Regulatory Compliance: Revenue and audit regulation complexity adds cost and risk to your organization. How can you consistently support these needs while lowering your risk and cost?

Visibility: Many Financial Executives would like greater insight into revenue data and processes. What could you do with increased visibility into your data?

 If you have any difficulty accessing this, just let me know and I’ll register for you!

  Since Tensoft President and CEO Bob Scarborough isn’t always great at blowing his own horn, I’ll do it for him. I’m proud to announce that this April Bob started fielding questions as an industry and subject matter expert on the Proformative website (www.proformative.com).

Proformative is an online resource and professional community that provides a new and effective way for corporate finance, accounting, treasury and finance-related professionals to find answers to their technical and operational questions, and easily find practical resources that serve their daily needs. On the site, financial professionals can search an ever growing knowledge-base of peer, expert and aggregated content to quickly find practical answers and relevant information.

Bob’s expert page can be found at http://www.proformative.com/ask/expert/bob-scarborough. He is listed as an expert in: 1) revenue recognition accounting; 2) manufacturing accounting; 3) cloud computing and SaaS software; 4) revenue recognition software and 5) Microsoft Dynamics GP implementation. Bob encourages questions and discussions on real-world financial issues, and enjoys the interchange of ideas and solutions that the site facilitates.

If you lose the link above, simply click on “Ask the Experts” and type in “Scarborough” to see the questions and comments that are currently under discussion. Or, send Bob a question and engage in open or private discussions (anonymously or with your real name) and get his perspective on issues on which you deal every day.

Our recent announcement of a strategic partnership with McGladrey, one of the leading providers of assurance, tax and consulting services in the U.S., has a “back story” that is almost as interesting as the news itself. In the Tensoft press release, dated August 24^th, I alluded to what an ideal partner McGladrey is to represent the Tensoft RCM Suite. The company combines both a strong vertical market focus on the technology sector with multi-faceted consulting services.

We felt that McGladrey’s extensive experience providing tax advice and consulting services to technology businesses was a great fit for the Tensoft RCM Suite. The Microsoft Dynamics-based solution brings together the specific revenue, billing and contract management functionality that software and other technology companies require. McGladrey brings both the strength of their Technology Services practice and the depth of their assurance, tax and consulting services expertise.

How did we get together? I’d like to think that two such ideal partners would just normally find each other out there in the world of business. However, in this case, we had some help.  The agreement was facilitated through Microsoft’s Partner Channel Accelerator Program – a unique program that Microsoft has devised to help its Microsoft Dynamics ISVs locate potential partners using a more refined and focused approach. We went into this with some ideas about what our ideal partner should be and what the market would look like. The program facilitator drew out of us how we should define who our partners should be – what’s in it for them and what's in it for us – to make this something truly real and valuable to both sides.

There was a serendipitous component to the match as well. Tensoft has had an excellent, long-term relationship with Caturano & Co., a company that McGladrey recently acquired. We've been working with Caturano for several years now. They've sold and installed Tensoft RDM as well as Tensoft MNC, so we're excited to have the opportunity to work with them to re-sell Tensoft RCM too, now that they’re part of McGladrey.

Stan Mork, Managing Director – Technology Services for McGladrey, highlighted the good fit from his perspective on his company’s website. “At McGladrey, we understand that technology companies face some of the most stringent regulatory requirements of any industry today, and often grow – and change – so quickly that it can be challenging to set up adequate business processes to address these. By partnering with Tensoft, McGladrey can deliver a scalable solution which meets the specific revenue, billing and contract management needs of these businesses, and can then provide the value-added consulting services that will provide significant strategic advantage.”

From my perspective, I’d say this is a story of three excellent companies, working together for the betterment of all. Truly a win-win-win situation.