Are your portfolio companies ready for ASC 606?
…if not, there’s still time before the January 2019 deadline – but not as much as your management teams may think.
Adopting this entirely new revenue recognition process will require significant effort from a cross-functional team. Everything from client contracting, to employee compensation, to accounting processes may need to change.
If one–or a few–of your portfolio companies haven’t started implementing ASC 606 yet, it’s time for a gentle nudge. Here are 11 reasons to ignite a sense of urgency.
11 Reasons to pay attention to ASC 606 right now:
- Reason #1: ASC 606 will change timing, amount of revenue, expenses and EBITDA. Revenue may be accelerated or deferred; costs may be capitalized.
- Reason #2: When financial measures are driven by revenue or its derivatives, certain debt covenants may be violated.
- Reason #3: Revenue may become more volatile and less predictable.
- Reason #4: ASC 606 requires extensive business-focused revenue disclosures.
- Reason #5: Due to costs related to system changes and revenue reporting processes, ASC 606 is time-consuming and expensive to adopt.
- Reason #6: ASC 606 requires significantly more judgments, estimates, and disclosures; it also introduces new risks.
- Reason #7: For long-term contracts, there may be permanently “lost” revenue upon transition.
- Reason #8: Executive compensation, bonus, and sales commission plans may require revisions.
- Reason #9: Contracting practices may need to change.
- Reason #10: Legal and sales personnel will need to be educated and involved in the transition.
- Reason #11: ASC 606 will impact budgeting and forecasting.
Looking for more information on ASC 606? Check out our recent article, published in PE Hub.