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Jun 10, 2019 | IN Business Process Management | BY Wayne Smith
Is Revenue Recognition Killing Your Business?

For many businesses, the company financials look healthy on paper, yet reality tells a very different story. Projects that take weeks or even months to receive payment are starving the business of cash flow and make seemingly "healthy" companies struggle to meet payroll, fund current projects, and maintain growth objectives.

How does this happen? How is a company with plenty of business forced into panic-mode as payday approaches or made to rely on lines of credit to fix broken equipment? The answer lies in revenue recognition and how it is managed in the business.

According to the revenue recognition principle, revenue should be recognized and recorded when it is earned. In other words, companies should not wait until revenue is collected to record it in their books. This principle causes many companies to fail to see how they can increase cash flow in their business.

Revenue is vanity, profit is sanity, but cash is king.

Why Do We Wait Until the Bitter End to Collect Payment?

For most wireless construction projects, payment requires proof – proof that the work associated with the payment is completed to the required specifications. Final quality inspections and approved permits submitted as part of the closeout package often serve as this "proof."

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What if you could submit proof throughout the project cycle? What if you did not need a separate team to prepare field data and send it to the client?

The right tool can take your business from cash-starved to project-based cash flow while simultaneously reducing the administrative burden on your team. How? With real-time, in the field data collection and submittal combined with the right construction-based payment schedule.

Step 1: Change How Data is Collected

How do you collect field data?

  • Wait until the end of the project to collect photographs, inspection reports, and checklists
  • Gather data sporadically and save it in a project folder

Active Oversight allows your field technicians to manage project data, including forms, checklists, and photographs in the field and upload it to a central repository. Push notifications notify reviewers who can approve or reject the proof before the field technician leaves the job site.

If the proof is rejected, the field technician can immediately make the needed adjustments and resubmit without having to make a separate trip back to the site. If the proof is approved, the reviewer can quickly submit it to the client for milestone payment.

Step 2: Change How Your Contracts are Structured

Most projects follow a predictable pace that puts cash at the very end:

  1. Submit project bid
  2. Receive project award
  3. Acquire needed project resources (equipment, supplies, vendors)
  4. Complete project: the antenna is up; fiber is lit, equipment is powered
  5. Complete quality management inspection checks
  6. Complete site restoration
  7. Complete outstanding permitting requirements
  8. Submit closeout package – PAYMENT MILESTONE

In this scenario, payment is tied to the construction objectives, and no payment is received until all of the construction objectives are met. It may seem that linking cash to the end of the project is what your clients want, but in many cases, this is not true. Clients are happy to pay at points that are tied to business objectives – it keeps you accountable to the points of the project that matter most to their business.

Never take your eyes off the cash flow because it's the lifeblood of the business. – Richard Branson

A cash flow conscious project may look like this:

  1. Submit project bid
  2. Receive project award
  3. Acquire needed project resources (equipment, supplies, vendors) – PAYMENT MILESTONE
  4. Complete project: the antenna is up; fiber is lit, equipment is powered – PAYMENT MILESTONE
  5. Complete quality management inspection checks
  6. Complete site restoration
  7. Complete outstanding permitting requirements
  8. Submit closeout package – PAYMENT MILESTONE

Tying payments to business objectives that matter to both you and your client gives you the flexibility to collect payments at strategic project milestones and keep your business thriving throughout the project cycle – and not just at the end.

Active Oversight makes it easy to gather data and submit to clients at any point in the project cycle. Additional payment milestones do not have to create an administrative burden. In fact, they may be just the thing your business needs to thrive and not just survive.

Tags: Business Process Management, Revenue Recognition

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