Work.software Blog

Why you need a Revenue Recognition Policy

Metrics without parameters are just random numbers.

When you use Work.software, the point isn’t to see figures that make you feel good. Take the Growth Creation Score, it exists to provide a real and relevant benchmark for how things are going. It also includes factoring in data and variables from all areas of the company, from large orgs to individual employees. As that data evolves over time, so do the final metrics.

Let’s be clear: Running a business is complicated, so there’s no quick trick to keep your numbers on an upward trajectory. However, there is one important box to check, and that’s defining -- and sticking to -- a revenue recognition policy. 

Revenue isn’t subjective, but many businesses make the mistake of treating it that way. The method in which you define revenue shouldn’t fluctuate with each quarter. It’s crucial to identify the exact conditions in which your specific company recognizes and places value on revenue.  A great policy starts with great knowledge.  Formal revenue recognition policies should be written in conjunction with your company’s CPAs, following GAAP structure and have the approval of management.

When you adhere to a strictly-defined revenue recognition policy, you’re avoiding the pitfall of taking cash flow for granted. Whether it’s been an incredible year or one that missed the mark, management and investors know that there’s nothing sketchy about your numbers -- and that reassurance can make all the difference when it comes time to exit.

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