How ASC 606 Will Change Your SaaS Company
Businesses across the U.S. are preparing for ASC 606, Revenue from Contracts with Customers – the new accounting standard that reshapes how companies recognize revenue.
It means big changes for subscription-based businesses, and while you may be well aware that the ASC 606 deadline is looming, is your business and technology fully prepared for changes in revenue and contracts?
To help you figure it all out, we’ve highlighted some important considerations and scenarios below and invite you to download this eBook, ASC 606 and Your Subscription Business, for more guidance.
Issues to Consider for SaaS Companies
As you brace for the impact of ASC 606 on your subscription-based company, here are some things to keep in mind.
It’s a hassle for a good cause. While tricky to understand, ASC 606 was created to clean up a mishmash of standards for recognizing revenue. The goal is to create a more consistent and equitable business environment.
There’s a deadline. According to the Financial Accounting Standards Board (FASB), private entities in the U.S. must apply ASC 606 for annual periods beginning after December 15, 2019.
It affects your entire service lifecycle. The effects of ASC 606 reach deep into your company. From writing contracts to recognizing revenue, your entire service lifecycle is affected.
ASC 606 Scenarios
Here are some examples of how ASC 606 will create a cascade of changes across your organization.
New rules for revenue recognition mean sales commissions and bonuses may go up or down, depending on how things play out for your company. This means paycheck changes for sales staff, customer service workers, and other incentivized employees. Are you ready to answer their questions?
In addition, ASC 606 creates a new way of handling freebies that are often given as part of contracts. If you’ve always thrown in free support or free warranties to entice customers to close deals, you might rethink that strategy.
Prior to ASC 606, your billing department and finance experts mostly had to know the revenue recognition rules for your exact industry. Now, with more generalized rules, there’s more for them to know.
In a day-to-day sense, this means your money gurus will need to weigh in on existing contracts, new contracts, recurring subscriptions, refunds, price changes, and much more, to ensure everything is compliant with ASC 606.
ASC 606 brings your legal department into revenue recognition, because everything that adds value to services must be considered. So if your legal department reviews and adds something to your services, this must be considered as you recognize revenue.
For similar reasons to legal, marketing activities are a part of revenue recognition under ASC 606. Companies must allocate the transaction price to the proper contributors to the service, including your marketing department.
The Bottom Line
It’s a lot to understand, but the message is clear: Your company is doing things that need to change under ASC 606.
Contracts you wrote back in 2015 could need to be completely reconsidered today. Your service packages and prices definitely need a fresh look. There’s no question you’ll need to update your accounting practices.
BrainSell can help your company prepare for ASC 606 changes compliance. Let us know if we can answer any questions, or to find out what ASC 606 means for your subscription-based business, download our free e-book now!
Sonja is very active in architecting CRM, ERP and marketing automation solutions for clients across North America. As an ex-journalist, she is adept at exploring a client’s needs and coming up with cutting edge, elegant solutions that fit, drive adoption, and create real results.view all articles
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