To stay afloat, attract new business, and avoid trouble, your company must provide clients, investors, and government agencies with accurate revenue statistics. But did you know there are several different legal ways to recognize and record revenue?

Which method you choose is a decision best left to you and your financial staff, including your CPA, CFO, or accountant. Together, you can decide which revenue recognition methods best fit your needs, industry, and business setup.

Choosing a Revenue Recognition Strategy

Anyone running a business should be familiar with the revenue recognition strategies available. Armed with the right information, you’ll be able to have a meaningful discussion with your staff and stakeholders. Most importantly, you can use that information to make an informed decision when choosing how to recognize your business revenue.

The methods for recognizing revenue include:

• Sales-basis
• Completed-contract
• Percentage-of-completion
• Cost-recoverability
• Installment

1. The sales-basis method recognizes revenue at the time a sale is made. Whether the transaction is made using cash or credit doesn’t matter. The revenue is recognized the moment goods or services are transferred to the possession of a buyer or client. Sales-basis revenue recognition is generally the most accurate way to record revenue.
2. Under the completed-contract method, revenue and expenses are only recognized when a contract comes to an end, signaling the completion of work. The completed-contract method must be used in the absence of a long-term, enforceable contract, and/or when calculating the percentage of completion of said contract is not possible.
3. Percentage-of-completion means that revenue may be estimated based on how complete the project or contract is. This method works well for long-term contracts like construction or software development. This method is beneficial for companies who want to show incoming revenue even though there may be incomplete projects underway. This method is usually used with long-term contracts that are subject to legal enforcement, where estimating the percentage of completion is not inherently difficult.
4. The cost-recoverability method doesn’t allow revenue to be recorded until all necessary expenses for completing the project have been recouped. In other words, nothing can appear as profit until the total cost of obtaining it has been made up. This method may understate profits initially, but overstate revenue in coming years.
5. An installment revenue recognition strategy may be used if collecting payments from customers is unreliable. This method is often used in real estate, where a sale price is agreed to, but cannot be collected until or unless the buyer obtains financing. Once payments begin, revenue is recognized on an installment basis over the term of the contract.

How complicated revenue recognition may become depends on your industry and how your business is structured. There are many nuances that are subject to rigorous regulation. Therefore, it’s imperative to get professional counsel in revenue recognition. When it comes to stating income, you can never be too careful.

When your business reaches the milestone of hiring additional employees, you might feel like jumping for joy. After all, hiring means you’ve grown. Plus, the extra people can be a big help in both keeping up with your current workload and further expanding your company. If you’ve reached this point, congratulations are in order.

However, just one of the hurdles involved in hiring employees is doing payroll. Payroll is a big job fraught with rules and government regulations. Very few of us are well-versed in these regulations, which means you’ve got to learn them well, and quickly.

Letting a knowledgeable professional handle your payroll is another option and it’s a good one. Accuracy is vital to avoiding a big mess, which is why so many business owners hire an accountant to handle their payroll. Let’s take a look at a few reasons why using an accountant might be the right choice for you.

• They know the rules
  

  Most accountants are well-informed when it comes to managing payroll. It’s their job to stay on top of the current standards for withholdings, documentation, supporting data and more. Even little mistakes, especially if repeated, can add up to a big hassle later on. You can save yourself a lot of trouble by letting an accountant manage your payroll for you. Even if you use software or an online service, it’s easy to overlook things or make a mistake when setting it up. Better to let a real person with real knowledge take care of it.

• You’ll get personal attention

  There are payroll programs and online services out there, and many of them are pretty good. However, there is no substitute for a real human being, with whom you have a real relationship and real time conversation when you have questions. You can’t build rapport with a computer or web-based service. They don’t care about your success and can’t answer your questions directly. When you work with an accountant for payroll and other services, you are actually building a relationship with someone who has your best interests at heart – and that’s worth a lot.

• They can do more
  

  When you have an accountant for payroll, their expertise can spill over into other areas of your business. They may catch mistakes that have been made, ensure proper tax withholdings, provide financial consulting, and help with things like compensation packages, profit sharing, and more.

• They can save you money
  

  As a small business, you may be hesitant to hire an in-house payroll manager or accountant. The good news is that you can retain a third-party professional to manage your payroll and other duties for a fraction of what an employee would cost. Add to that the benefit of having someone with solid financial knowledge on your side, and that can mean big savings at tax time and throughout the year.

For the most accurate payroll service, look for an accountant who specializes in payroll and has CPP (certified payroll professional) credentials. Don’t risk going it alone. Professional payroll help is widely available and probably more affordable than you think. You owe it to yourself – and your employees – to make sure it’s done right.