Manual revenue recognition leads to errors & delays in accounting
Brandon Correll CPA, Lead Accounting Manager at Fondo, manages the books for the firm’s startup practice. As part of his month-end close tasks for each client, he has to calculate revenue recognition metrics. The process poses a challenge for companies that have subscription, prepaid, or multi-product revenue, with complicated accrual schedules that are typically calculated manually in a spreadsheet.
Given that he works for Fondo, a leader in accounting for the startup industry, many (if not all) of the firm’s clients also want to see monthly recurring revenue (MRR) and annual recurring revenue (ARR) as their top KPIs. Though MRR and ARR are technically not accounting metrics, accurate revenue recognition numbers are a must-have for these types of businesses.
“Revenue recognition calculations can be highly inconsistent,” said Brandon. “There are hundreds of variations. So having an automated process is a game changer.”
Historically, anyone who wants to perform revenue recognition calculations has had few options. They can export the data from a payment provider and make the calculations in a spreadsheet, or use a third-party plugin. In many cases, data comes from multiple locations, so that means exporting multiple sources. And when all this is done, they have to transfer it into the accounting platform.
All this manual work presents several challenges. First, it’s highly error-prone. Typos in a spreadsheet, incorrect date ranges for downloaded data, or even missed data sources can deliver a partial or even an incorrect picture. It’s also a huge time-suck, taking Brandon an average of 2 hours per client. And it offers limited visibility to stakeholders, who will only see the summary entries booked into the accounting system. So only the person doing it really understands the details.
Puzzle provides automated revenue recognition that integrates with Stripe
Brandon was recently introduced to Puzzle, a modern accounting platform focused on startups. Puzzle, as part of automating accrual accounting offers a revenue recognition function that automatically calculates accrued revenue based on invoicing data, including customer contracts. The invoicing and subscription data can either be uploaded manually or by connecting Stripe’s API.
“Almost all of my clients use Stripe as their primary payment source, so any accounting functions that work directly with Stripe are ideal,” said Brandon.
In order to see the difference between his current processes and what the Puzzle + Stripe integration offered, Brandon decided to perform a test. After pitching Puzzle to one of his clients, he got permission to pull their transactions from Stripe into Puzzle. From there, he could compare the experience of calculating revenue recognition manually versus using the automated revenue recognition function powered by Puzzle + Stripe. In addition, he could record contracts from other sources and make adjustments in Puzzle.
Fondo cuts 60% revenue recognition time using Stripe + Puzzle
The benefits of the Puzzle + Stripe integration became clear to Brandon immediately.
Revenue journal entries are automated end-to-end in Puzzle with 100% accuracy across cash basis, accrual basis, ARR and MRR. They are fully traceable & reconcilable back to Stripe with Puzzle acting as a validation layer. Puzzle rolls up revenue from Stripe and revenue from other sources to provide a complete accounting picture. This makes the accounting workflow seamless as the entire process is done in one system.
“No journal entries are necessary to defer revenue/recognize revenue and the amortization schedules are built into Puzzle, for easier review of invoices,” said Brandon. “There’s less room for human error when you take out the manual effort.”
The automated nature of Puzzle’s revenue recognition function also offers massive time savings in the following areas:
- Deferred revenue setup was reduced by 75-100%.
- Transaction coding was reduced by 50%.
- Deferred revenue review was reduced by 30%.
Brandon also gained increased visibility from the Puzzle revenue recognition function + Stripe Accounting API integration. He and his client can easily see MRR, ARR, customer churn, deferred revenue, and a host of other metrics right in their accounting system. They can add other sources in addition to Stripe revenue to see the full picture and with the Stripe API updating daily, stakeholders know the numbers they view are in real-time.
“The Stripe integration worked well for all new invoices in the current month,” said Brandon. “For new clients that didn’t previously have accounting software or revenue, the set up is easy and ready to go from day 1.”
Brandon plans to share the revenue recognition functionality of Puzzle + Stripe’s Accounting API with his other clients so they can reap the same benefits.
“Not only is my job easier, but my client can see accurate, mission-critical metrics in real-time,” said Brandon. “I plan to share it with other startup clients so they can reap the benefits as well. “
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