The modern business environment is defined by rapid change, digital transformation, and of course, a highly competitive market. There is constant pressure on companies to do more with less resources, and it’s the ones who are able to clearly define their goals, understand their challenges, and take decisive action who are able to achieve the financial goals that drive success in the enterprise market. The question remains, even for Fortune 500 companies, how to manage time and resources more efficiently, financial departments and accounting resources being chief among those concerns.
All companies know the high cost to mistakes when it comes to accounting and finance processes. Without the right advisors, the right software programs, and the right talent, the numbers can make or break a company. In this article, we focus on some of those key challenges, as well as suggest some solutions and resources that can help your finance department overcome those challenges and achieve the financial success you are working toward.
Understanding the Basics of Accounting and Finance
Your accounting team needs to take a holistic approach to your business finances. It’s not just about hiring qualified CPAs, bookkeepers, and support staff. Your accounting team needs to know your business front to back. They need to know your clients, your projects, and how revenue is earned and spent. Project management is a key skill, as is leadership capabilities. When you hire for accounting and finance roles, look for the professionals who can step into more senior roles when the time is right, as well as ones who are able to learn and mentor others as well. The discipline is undergoing a great deal of change right now, and having a team you can count on to see your business through those changes is critical.
Of course technical prowess and experience within the financial discipline is key to a strong accounting staff as well. The ability to meet deadlines, plan for long-term projects and goal accomplishment is important. Your team needs to maintain detailed and flawless documentation, and have a deep understanding of compliance requirements and understand what it takes to keep the company in the clear and avoid unnecessary fines.
You count on your accounting and finance staff to make ends meet, to focus on the details of the day to day business proceedings so the rest of your team can focus on the customer, on the projects, and on the tasks needed to drive your company forward each and every day.
Changes on the Horizon
As we mentioned above, there are some substantial changes about to take place as it relates to accounting and finance. According to industry reports, many U.S. based companies are unprepared for the changes taking place to national accounting standards. Here’s what you need to know.
The new ASC 606 revenue recognition guidelines are what the fuss is all about. But when the rubber meets the road, these new guidelines will impact existing contracts as well as adjust the way revenue is
recognized when customers renew or upgrade contacts as well. While many businesses think that preparing for and implementing the new accounting standards by the January 1st, 2018 deadline will be a painful experience, it all comes down to thoughtful preparation and planning. Recognizing that this new Revenue Recognition standard will affect core business functions and planning for the change management that will need to take place will help enable your teams and achieve the financial outcomes that your business thrives on, before and after the deadline.
ASC 606 – Redefining Revenue from Contracts With Customers
This revision to the accounting standards provides accounting guidance as it relates to revenue from contracts with customers. The guidance applies to all entities and to all contracts, with certain exceptions. The new standards define contracts with customers as transferring goods, services or non-financial assets unless the contracts are already covered by other standards such as leases or insurance contracts. The change establishes a 5-step process for revenue recognition:
1. Identify contracts signed with customers
2. Identify timing of separate performance obligations
3. Determine the transaction price for the contract
4. Allocate the transaction price to each of the performance obligations
5. Plan for and recognize revenue as performance obligations are satisfied
The critical implication of the new process is that instead of recognizing revenue when the cash is received, companies will recognize revenue when performance obligations (also known as deliverables) are met.
That’s a big change for companies. Businesses who frequently charge the terms of a customer contract will be the ones most affected. Every time a contract changes, the new standards require a reassessment of performance obligations and if needed a reallocation of revenue across the contract.
Companies that rely on Excel spreadsheets or other accounting software that requires manual input of contract information will see a dramatic increase in workload as it relates to contracts. Additionally, accountants will need to maintain two sets of books for several years to show and compare revenue recognition under both the old and the new regulations.
The good news is that companies are aware of these required changes and have time to prepare for them. This will require updating accounting software (it’s worth checking whether your ERP or accounting program will automatically handle the new requirements or not) and a deep dive into the impacts to existing customer contracts that will require revision or a more complex bookkeeping system in the future. It’s clear that while both the finance and IT department will bear the brunt of this responsibility, the entire organization will be impacted by the changes brought forth by ASC 606. In order to achieve those necessary process upgrades, you need to prepare to implement widespread, strategic change.
Succeeding through Change Management
While many accounting and finance professionals are aware of the implications of these changes, it’s important to think about the evolving process from a larger business perspective. Yes, it will take more work to track contracts, but it will also provide a more accurate view of your performance and your revenue.
Organizational Change Management may seem like a weighty endeavor when it may just be a few select employees or vendors who will be enacting the changes, but again it’s important to take a holistic approach. Your legal teams, the sales and marketing division, as well as IT and HR will all need to understand how these changes will be taking place. There needs to be a top down, strategic initiative to help actively minimize resistance, educate employees, mitigate loss of productivity, and reduce business disruption as much as possible.
There are three key elements to accomplishing a successful change management process, as is required to spearhead compliance with these new accounting standards.
1. Companies must engage through ongoing stakeholder communication to gain and maintain buy-in and support from all levels of the business hierarchy. This takes thoughtful identification of stakeholders and influencers, the development of key messaging, defining an engagement plan that produces results, and developing the communications themselves that achieve the overarching mission.
2. Businesses must enable their staff members and partners through organizational analysis and modification to promote and sustain change. This takes clarification of objectives, evaluation of change readiness, and the identification of organizational modifications that will produce the desired results.
3. Companies need to execute on their change management plans by training and communicating to successfully ensure implementation and establishment of a new status quo. This takes clear assessment of stakeholder impacts, the development and delivering of effective training, a thorough communication plan and roll out, as well as the ongoing assessment of feedback and outcomes.
Many businesses fail when they are unable to align their business goals with evolving regulatory expectations. In fact, only 33% of change efforts are found to be clear successes. Many companies struggle to maintain the urgency messaging and communicate the importance of the necessary change. Many employees struggle with change enablement and execution, but there are a number of things you can do to maintain the momentum and accomplish your business goals in a holistic manner. We at Clarity focus on supporting our customers through their change management initiatives within the finance sector because we know how critical it is. The lessons we’ve learned on how to engage, enable, and execute on strategic change have helped us achieve a remarkable 98% success rate.
When a company is struggling to find the talent they need to support their financial goals, then meet the fast moving requirements of a changing regulatory landscape, all while bringing the rest of the organization along for the ride, that is when they are at their most vulnerable. And we are happy to help.
Take a look at some of our highly recommended consultants that can help your finance department overcome challenges and achieve the success you are working toward.
For more information on how your organization can achieve financial success in a changing and competitive market, connect with the learning and development experts at Clarity Consultants. We can help you perform a needs analysis and take action to empower your team for long term business success.