Category: small business

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Revenue Recognition and closing the reporting GAAP

Revenue Recognition and closing the reporting GAAP

chartOne company earns what the other company spends.  This is business, and it seems like it would be pretty straightforward, accounting for the money coming in and the money going out.  But it is really not that simple when it comes to business finances and accounting for revenue.  With investor pressure to improve share prices and market pressures forcing greater competition, businesses have always sought out ways to make the performance look as good as possible – on paper even if not in reality.  It is this requirement to make the business look better than it may actually be that drives “innovation” in financial reporting, and encourages some companies to use whatever rules are available to mislead investors or paint a rosy picture for stakeholders.  When the balance is lost and financial reporting standards become so oblique as to allow regular and gross misrepresentation, it is time to change the standards.

There are numerous instances of fraud and scandal reported from the finance departments of big businesses, but instances of improper or misleading revenue recognition can happen in even the smallest of companies, and not necessarily on purpose.  It is important to understand that properly and accurately reporting business revenue and earnings isn’t done just for investor satisfaction, it is an essential part of describing business performance that any owner or manager must be able to rely on.

Generally Accepted Accounting Principles (GAAP) provide investors and business owners with some consistency in the financial statements they use to analyze company performance, but only minimally.  This is partly due to the fact that GAAP is based not only on some standards established by policy boards (the authoritative standards) but also on “generally accepted” standards, which are often not really standards at all but simply past practice that was found to be accepted.  Especially in the global economy where fewer businesses operate solely within traditional territorial boundaries – and where accepted reporting methods vary widely – having a single financial reporting standard has become more important than ever.

Make it so, Number One.

Now there are new rules from FASB (Financial Accounting Standards Board) and IASB (International Accounting Standards Board) which provide clear and detailed guidance for how businesses recognize revenues.  These rules are based on a consistently applied set of principles, no matter what sort of business is involved and regardless of where the business is located.

A focus of the new rules of revenue recognition centers on customer contracts, delving into the details of how earnings from those agreements should be recorded. Consider that many businesses combine multiple products and services into a single agreement, even though there may be several deliverables or milestones included.  This method of booking customer contracts allowed companies to report revenues they were not yet due as part of a total agreement, often resulting with inflated earnings reports.   Stakeholders would perceive that the company had reached one earning threshold, but the reality was something quite different and performance expectations were unmet.

“FASB and the International Accounting Standards Board (IASB) issued converged guidance on recognizing revenue in contracts with customers. The new guidance is a major achievement in the Boards’ joint efforts to improve this important area of financial reporting.”  http://www.fasb.org/jsp/FASB/Page/BridgePage&cid=1351027207987

The new rules force an additional level of discussion, including a full set of disclosure requirements that will provide more information about contracts with customers.  Businesses must identify each promised deliverable and attached revenue or earning component, which helps to better understand how the revenue may be earned (and recognized) as the business performs on the various obligations to the customer.

Just take a look at some big ERP companies and the lawsuits generated from problems and failures in delivery – problems that might have been more clearly identified to investors and stakeholders if the tie between product sales and services to be performed were more clearly described.  In many cases, these situations exemplify the revenue recognition reporting problem, where large customer contracts and license sales were fully booked and recognized even though implementation services milestones attached to those license sales remained undelivered.

“2010 – JDA Software (i2) – Dillard’s, Inc.:  Dillard’s had alleged i2 failed to meet obligations regarding two software-license agreements for which the department-store operator had paid $8 million.” http://www.zdnet.com/blog/projectfailures/erp-train-wrecks-failures-and-lawsuits/12055

For private companies, reporting periods beginning after December 15, 2017 must follow the new guidance.  It may seem like a long period of time – from the decision to apply the new rules to the effective date – but the number of businesses the new rules will impact is large.  The FASB made a decision to delay the effective date because of the broad scope of organizations affected and “the potentially significant effect that a change in revenue recognition has on other financial statement line items.”

Business owners and their accounting professionals need to make sure that financial systems and processes are up to the task and can track and produce the detailed reporting these new rules require. For investors and analysts, the new reporting rules and detailed information they generate will go a long way towards minimizing the impact of innovative revenue reporting practices, and will hopefully bring a new level of believability and usefulness to business financial reports.

Make Sense?

J

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Small Business IT Governance: You really need it now

it-balancing-actBig changes are going on in the world of information technology and business.  Where social computing and  mobility are no longer purely consumer concerns, enterprise IT departments face a growing requirement to embrace user devices and access in environments which were once strictly and closely controlled.  Enterprise IT may be challenged when presented with user personal devices and demands for remote access to enterprise data, yet the governance of systems is generally well-defined and strictly performed.  In small business, however, the people, policy and process issues (collectively incorporated into “governance”) tend to be more organic, and the use of personal devices and open access is more frequently considered to be a normal part of the overall business IT profile.

It is a focus on defining controls and processes, and influencing the activities and attitudes of the people involved, which has become an essential requirement in small business.  Where management of information technology resources was not of great concern to the small business owner before, increased device and information mobility (removal of physical boundaries) and erosion of logical boundaries around personal and business computing have become a really big deal for everyone in business. Small businesses just don’t often have departments of people working on the problem.

Technology use in business has always come at a price, and as various influences continue to change how users interact with devices, applications and systems, business owners and IT managers will continue to face difficult choices between balancing security of information resources and providing a productivity-enhancing user experience.   Too many security barriers result in avoidance of security protocols, slow or immobile company computers result in users working on their own machines and portables, and restricting access for mobile users results in “shadow IT” implementations of mobile sync and other data access approaches.

Yet “shadow IT” tends to be the norm with many small businesses, where there are often fewer barriers to implementing solutions which address individual user issues or problems.  Lacking the resources or understanding to develop a strong plan for managing information systems and technology within the business, small business owners often consider the computer systems and computerized data to be tools to get jobs done rather than strategically valuable assets to be strictly controlled and protected.  These business owners are not recognizing the ever-increasing need to not simply secure business information, but to establish processes and rules which will govern how users and devices access and interact with the information and systems.

Enterprise IT departments have often viewed their small business counterparts (customers, suppliers, etc.) as potential points of vulnerability, an attitude which was once considered to be centered not on real assessments of the risk but more in terms of ego, level of sophistication, and hierarchy in the food chain.  In today’s world of real risk introduced by myriad technological and human elements in every link in the supply chain, enterprise IT conclusions regarding the risk potential of doing business with anyone – including small businesses – may not be entirely unfounded.  Whether it be commentary and information distributed by individuals via social media or malware or corruption introduced inadvertently (or not) via computerized interaction, there is the possibility of risk introduced with every system, person and process involved.  Enterprise to enterprise, these issues may be more often recognized and remediated; where the SMB is involved, not always so much.

This is a brave new world of computing, and there is truth in that even the smallest of businesses can “compete with the big guys” when the right mixture of technology and process is applied – for good or bad.  Technology enables businesses to be more productive, get more done with fewer resources and perform at higher levels. IT Governance in small business is no longer an optional area of focus, addressed only during infrequent discussions with the local contract IT guy when he comes in to defrag the hard drive on a slow computer.  Establishing the proper processes and controls to wrap around IT use in the business has become an imperative; a necessarily specific and considerate approach to how information technology is used within the business, who uses it, and what IT is composed of.

Just about every business, and most individuals, are connected in some manner via some type of network, representing a dramatic and dynamic change to the traditional composition of business IT and the landscape of vulnerabilities which threaten it.  The increased connectedness, capability and complexity of systems and networks requires a greater focus on overall IT governance – exercising authority and controls – as the impact (just like the information) can easily and unintentionally reach far beyond the boundaries of the individual business.

jmbunnyfeetMake Sense?

J

“People are nothing more than another operating system”, says Lance Spitzner, training director for the Securing The Human Program at SANS Institute.  “Computers store, process and transfer information, and people store, process and transfer information,”  How Hackers Fool Your Employees

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Accessing Small Business Leadership and Development Resources: More for the growing concern

Accessing Small Business Leadership and Development Resources: More for the growing concern

There are a lot of resources available for people who want to start a small business.  From business plans to funding websites to guides on entrepreneurship, the available pool of information on starting up and growing a business is huge.  So huge, in fact, that many small business owners fail to find the things they really need to help them grow the business, expand operations and hire more employees.  While entrepreneurship and starting a business is the first step, the economy grows and flourishes when small businesses grow and flourish.  This is why the site SmallBusinessLeadership.com was started in cooperation with the America’s SBDC.

Among the available resources for small business owners is the Association of Small Business Development Centers, or America’s SBDC.  These association offices are found throughout the country, and represent a wealth of support for small business which is, as we all know, the fuel powering the American economy.  A report authored by James Chrisman, PhD investigated the economic impact of the Small Business Development Center counseling activities in the US in 2010-2011, and found that the centers are indeed instrumental in supporting small business success.

Among the findings is an analysis of the contribution SBDC long-term clients made to the economy, finding that these businesses “added $6.8 billion in incremental sales and 75,166 new jobs to the nation”.  The investment in helping startups and entrepreneurs also demonstrates clear success, with “59.2% of all pre-venture clients” starting a business within one year of receiving counseling from the SBDC.

But the success with SBDC isn’t all about starting up and expanding business– it’s about retaining people (jobs) and sustaining revenue, too.  With economic challenges facing every business owner, the ability to simply maintain the operation at existing levels often becomes the biggest job of all.  In this area the SBDC also performs well for business clients, and estimates that “83,268 jobs were saved and $7.3 billion in sales revenues were maintained as a result of the [SBDC] counseling”.

And talk about fueling the small business economy!  Businesses need financing and capital to operate and grow, and as a direct result of the assistance they received from the SBDC “approximately $3.3 billion in capital” was raised by SBDC business clients, according to report estimates.  Not too shabby when you consider the difficulties many businesses are having with obtaining financing through commercial banks and other funding sources.

There is no argument with the value the SBDC brings to the small business community.  What may be a challenge, however, is finding those resources and getting involved with the information and people who can really make a difference for a business owner in a particular region or area.  While there may be SBDC counselors in the area, there is no guarantee that there’s an easily searchable website or method of gaining a little DIY education without making an appointment.  SmallBusinessLeadership.com addresses this challenge by providing location-specific access to SBDC and other resources for business owners who wish to find experts and insight relating to their particular locale or situation.  Additionally, visitors to the site can explore the varieties of content made available from SBDC offices and small business experts, ranging from success stories and case studies to tips for marketing the business, approaches to improving business process support, or even finding technologies or services to solve specific business problems.

Starting or growing a business isn’t something you do alone.  It takes a committed team from the development of the first idea through to the hiring of employees and expansion to new locations.  Working with America’s SBDC and leveraging the knowledge and resources available via SmallBusinessLeadership.com, business owners across the country will find new ways to build stronger foundations for the business, and to develop leaner and more sustainable operations than ever before.

jmbunnyfeetMake Sense?

J

smallbusinessleadership

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Following the Rules: Users and Licensing for Hosted QuickBooks

Following the Rules: Users and Licensing for Hosted QuickBooks

I have said many times before that the licensing for QuickBooks desktop editions appears to be a bit complicated, and a lot of that may have to do with the fact that so many people use QuickBooks in so many different ways.  With a solution like QuickBooks (or Microsoft Office or other really popular and widely used software products) there is a tendency for folks to want the flexibility of accessing their software regardless of what computer they are using.  Also, especially in businesses, there is the habit of installing software on a computer and then allowing anyone sitting at the computer to use the software.  In some cases these approaches are okay with the software vendors, but in most cases they’re not.  Yet too often, the small business owner doesn’t find out what the actual rules of using the product are until they try to deploy the software with a hosting service provider (because nobody ever actually reads the EULA, do they?).  If the provider has any credibility at all, they will enforce the licensing rules of the software, but that doesn’t always sit well with the customer.

picture-hostedQBThis situation rears its ugly head quite frequently in the QuickBooks hosting world.  Perhaps it is because there are a lot of possible working models involving QuickBooks users, or maybe it’s simply a matter of people not seeing the value of paying for what they want to accomplish.  Either way, service providers find themselves being challenged every day in trying to explain to a customer why they need to have more than one license for QuickBooks and more than one service account if they want more than one person to access the hosted solution.

Different people at different times: The Concurrent User approach

One of the arguments people make for not having licenses for all of their users is that they don’t actually need everyone in the system at the same time.  The belief is that there should be licenses enough only for the number of concurrent, or simultaneous, users that will access the system, yet each individual human being/user should have a login to the system with the software available (for convenience, of course).  A QuickBooks 3-user license, they believe, should be able to be used by any number of business users as long as no more than 3 of them are in QuickBooks at any given time.

While the customer may be making a reasonable argument, it all falls down when you consider the license agreement for QuickBooks.  Each user of the product is supposed to have a specific license.  A business with a 3-user license (or 3 single-user licenses) for QuickBooks has the rights to allow 3 people (unique human beings) to use the software, not any combination of people as long as they number no more than 3 at a time.   There is to be no sharing of licenses, and there is no “concurrent” licensing model: each person/user/human being is supposed to have their own license for the product no matter how often they access it.

Look but don’t touch: The Read-Only User approach

Another of the arguments people make for not licensing all of their users is that there is somehow a belief that if you don’t actually enter information, then you aren’t really using the software.  This often comes up in situations where an accounting professional works with their client, or when business owners want to occasionally see what’s going on in the company.  The approach centers on the concept of what a “user” is and suggests that users are the people entering or changing the data, and people only viewing that information aren’t really “users” at all.  When the bookkeeper opens QuickBooks and enters an invoice, the bookkeeper is recognized to be a user.  But when the business owner opens QuickBooks to view the financial statement or see the bank account balance, isn’t the business owner also a user?  Yup, they sure are. Any person that actually opens the program on the computer is a user, regardless of what they do when the program is open.  Just looking around at the data still requires that the program be open, and opening the program requires a license.

Two Fer: But the other hosting company lets me…

Just because you can do something doesn’t mean that you should.  So, just because a different hosting provider might let you get away with things that aren’t right (but perhaps are convenient or cost saving in the short-term) doesn’t mean you should expect a different host to allow the same thing.  If your current host says things like “as long as you don’t tell us…”, you should be concerned.  This often comes up in a hosting scenario where there is an outside accounting or outsourced back-office professional working with a hosted client business.  The outsourcer will want to access the client books, so they will want to have a login and access to QuickBooks software on the host system.

The trouble starts when the outsource professional doesn’t want to have to pay for their own service or licensing, yet they want to be able to login to the system and run QB just like the client does.  Falling sometimes under that attempt to leverage a concurrent user approach (see above), these outsourcers just aren’t realizing that the benefits of accessing their client information and working in real-time with that data is often valuable enough to support the cost of a hosted account and license.  Instead, they want their access to be free of charge and not be bound by silly rules of licensing, often because their client won’t want to pay for the accountant service in addition to their own.

This is when the “if you don’t tell us” stuff comes in – where the service provider may suggest to the accountant or outsourcer that they can simply login as the client and nobody would be the wiser.  I’ll fess up and say I have even entertained this idea with clients a few times but always shy away from discussing it in-depth.  While it is basically true that the service provider doesn’t generally know which exact human being is sitting at the other end of that remote desktop connection, that doesn’t mean that it is okay to leverage it into an abuse of services or licensing.

Two or more people sharing a single login just isn’t good ju ju, and it’s usually against a whole bunch of licensing rules and rights of use.  The funny thing is that many customers who initially leverage their service in this manner end up finding it was a really bad idea.  I saw a scenario a few years ago where a business allowed their outside auditors to share the logins of regular employees in the finance department.  When an employee tried to login to their remote desktop, they opened the session the auditor had open – exposing the employee to a lot of data that was not theirs to see but which the auditor user in QB had access to.  The company called it a security breach and it was on their part – and it was allowed to happen because they shared their remote desktops with the auditors rather than giving the auditors their own accounts with their own security profiles.  What seemed like a good, cheap approach on one day rapidly turned into a big issue the next, and the service provider had no power to prevent it from happening.

The moral of this story is simply that following the rules is the right thing to do and most reputable hosting service providers will try, even if they don’t end up doing it really well.  There are always going to be those who figure that the risks don’t measure up to the potential rewards, so they will do what they choose to do.  I’m always left wondering about those guys; if they have no problems breaking these rules, I wonder what other rules (or confidences) they are willing to break.  Hmmm.

Make sense?

J

 

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My Love/Hate Relationship with Partner Programs

My Love/Hate Relationship with Partner Programs

originally published on LinkedIn
 

I love Partner programs. You know, those business opportunities to get involved with a product or solution and earn revenue selling it to your customers. Particularly when the opportunity is attached to something you already do for a living, a partner program can represent a way to gain new competencies, new customers, and new revenue streams. Then again, I hate partner programs just a little bit, too.

When a business becomes a business partner, there’s an expectation that something will occur that benefits both participants (hence the word “partner”). Each side is supposed to benefit in some manner from the relationship. In the case of the partner program, the expectation is that the partner will sell the product or service to customers and gets compensation on sold deals in return. There may be marketing, lead generation, reseller pricing, training and other elements involved, but the relationship is generally one of “you sell my stuff and I’ll comp you for it”. The manufacturer gets more sales, and the partner gets products that customers buy, meaning revenue for the partner and the manufacturer. Sounds like a good deal.

Here’s why I hate partner programs at times: they tend to shift the focus from what a customer needs to what the partner can earn revenue on selling. For a product or solution-based business, this may not be a bad thing, as the business is in the business of selling product. For a consulting business, however, it can be quite problematic if the consulting team isn’t clearly focused on meeting the customer need rather than pushing product.

There’s an old saying that “if all you have is a hammer, then every problem looks like a nail”. Some consulting firms inadvertently fall into this situation, where they have their favored solutions (perhaps solutions they earn revenue from selling), and they automatically try to apply that solution to each and every customer engagement, whether it makes sense or not.

This happens time and again and not just with consultants, but also with accounting and bookkeeping professionals. Having developed an understanding for, and processes and procedures for working with, a particular business accounting product, the firm tends to make that product a standard recommendation for all clients. In this case the firm may not be literally reselling the solution for revenue, but has certainly “partnered” with the solution in the context that their ability to earn revenue becomes directly tied to the solution they want their client to purchase.

Partner programs can be hugely valuable to both the manufacturer and to the partner channel, and the value of having skilled “feet in the street” supporting and promoting the solution has been proven many times over. But accounting professionals and business consultants should take care when considering their possible participation in these types of programs, and be realistic about how that relationship fits in to the nature and quality of the service delivered to customers. The program may fit well with the needs of the practice, driving new revenue opportunities in new or existing areas of business. On the other hand, it may end up being a distraction, turning the focus from providing great client service and satisfaction to selling a product or solution just to earn an additional buck on the deal.

jmbunnyfeetMake Sense?

J

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Avoid the Aftertaste| QuickBooks Desktop Hosting Comes in Many Flavors

Avoid the Aftertaste| QuickBooks Desktop Hosting Comes in Many Flavors

There is a lot of activity and interest around the hosting of desktop applications in the cloud, and it is no wonder that a great deal of the effort centers on the use of Intuit QuickBooks desktop editions.  QuickBooks is among the most popular software products used by small businesses, so it makes sense that service providers and hosting companies are taking advantage of that market share to reach prospective hosting customers.  After all, a hosting platform may be kind of neat, but it is not all that valuable unless there are applications and data living on it.

For the average small business, the applications of choice include Microsoft Office and QuickBooks.  Yes, there is an online edition of the QuickBooks product (called QuickBooks Online, of course).  However, the market share Intuit earned for QuickBooks wasn’t accomplished with an online application, it was done with the desktop applications which still own market share today.  Hosting service providers recognize this truth, and are taking steps to bring those QuickBooks desktop solutions into the cloud.  Now we have the ability to get QuickBooks Desktop editions online – which is not the name of a service but a description of what it offers – available from a variety of authorized hosting providers (and from many unauthorized ones).

I’ve said before that there is a fine art to hosting QuickBooks desktop for lots of users.  There are a great many different considerations and possible use cases, and not all providers will be able to meet every requirement.  There are also lots of different technology models and methodologies which may be applied to the hosting model, and each has some benefit or barrier depending on the specific need of the client.  Hosting companies may throw around terms like “cloud server” or “published application” or “remote desktop”, but at the end of the day, the systems are still Windows computers running QuickBooks software.  How those systems are wrapped up, how you connect to them, and how you operate with them often becomes the real difference in the service experience.

The specific technology a hosting provider applies to the service does not necessarily describe exactly how the service works.  Just because a provider may use Citrix doesn’t mean they have more capability to provide quality service than a provider using other technologies, or a host using VMWare is not necessarily creating better cloud servers than a host using Hyper-V or Parallels or some other virtualization strategy.  The technology may impact how the infrastructure is operated and can impress upon the customer experience, but the real differences in delivery often come down to the provider’s understanding of the software product, the customer need, and their ability to meet the need directly.

Does the experience of connecting to and using the service work for the users, and are people able to get their jobs done quickly using the service without a lot of support or frustration?  (**Please note that hosting services aren’t a solution for bad software and poor working processes.  If the software or processes aren’t workable now, they’re likely not going to become magically more workable if hosted).  Does the hosting service address issues like making the right data available to only the users who need it, and giving access to applications only when a user is permitted to use them?  What about “external” users like contractors or client businesses… does the host offer a way for them to also participate in the solution?

It’s important to consider all of the aspects of how the service will be used, and by whom and under what circumstances, to ensure that the delivery offered is the solution needed. The point of all this is to encourage users to concern themselves a little less with exactly what technology the host is using to deliver QuickBooks applications, and to evaluate the actual solution.  It won’t typically matter to an end-user what specific technology is being used to provide them with service as long as the service works well for them.

While some people do adopt a fondness for a particular “flavor” of technology or approach, the reality is that a quality user experience coupled with a useful and reliable system means much more to the business.  And knowing that there are future options for growing, expanding or simply changing the service is essential.  It’s not so much the flavor of technology users should be concerned with when shopping for QuickBooks hosting services, it’s avoiding that icky aftertaste that comes with selecting a QuickBooks hosting approach that just doesn’t meet the business need.

Make sense?

J