In many ways, spreadsheet applications like Microsoft Excel are the backbone of the business world. With a little ingenuity, they handle everything from project management to employee expenses -- the ideal tool for companies that may not be ready to commit to a full-blown ERP system.
However, there are some areas where you're better off sticking to a specialized application, and one of these is revenue management.
The Allure of Spreadsheets
Revenue recognition and management represent a kind of "gray area" for many ERP and financial systems, often falling outside their core capabilities. That in turn leaves companies looking for alternatives to handle processes like:
- Subscription billing arrangements with customers that involve complex revenue billing (including renewals)
- Accounting for deferred revenue, multiple-element arrangements or unbilled revenue
- Billing based on milestones or percent completion method
- Contract renewals
- Complex pricing or pricing that involves frequent modifications
It's easy to understand why spreadsheets seem like the obvious way to tackle these: Excel and other products like it are ubiquitous in many companies, and have a relatively shallow learning curve.
But at the same time, these functions are critical to your success as a company, especially if you are offering subscription-based products and services. With smaller businesses and lower transaction volume, spreadsheets can be a viable alternative. But as your business grows in size and complexity, your revenues and customer base increase accordingly. And if you're still using Excel to handle your billing procedures and revenue streams, so too do your risks.
So, What's Wrong with Spreadsheets?
There are a lot of good reasons to avoid using spreadsheets to manage financial transactions, but here are four especially important ones:
They're Time-Intensive. When you commit to using spreadsheets to manually handle revenue activities, you're tying up labor hours that could have more impact elsewhere. That creates real opportunity cost.
They're Error-Prone. Even the most careful worker makes a mistake once in a while. The more data you're running through your spreadsheets, the greater the chance that slip-ups will start entering your most critical processes.
They're a Security Risk. With most spreadsheet applications, you're limited in how you can control access to data. And because multiple employees manage the information, it’s not always guaranteed that the “right” people are privy to details that should be restricted to a few designated managers.
They're an Audit Risk. Even a well-managed spreadsheet setup makes it difficult to establish the clear audit trails needed to keep your company out of trouble. The risk only multiples once you factor in the additional scope for human error.
More Spreadsheets, More Headaches
Scalability is another major source of problems. Initially, expanding your spreadsheet-based processes seems easy enough: you add a few rows, then a few more. Eventually, you add another spreadsheet. Then another. And before you know it, your key business processes end up looking something like this:
With each new spreadsheet, information visibility, transfer, and security get increasingly problematic. And as your data grows more and more scattered, getting insight into what's happening with your processes and finances goes from difficult to impossible. That in turn impacts your management team's ability to make vital strategic decisions or target areas for improvement.
The Risks of a Spreadsheet Addiction
With any spreadsheet-based solution, you inevitably will reach a point where it's no longer possible to keep a productive flow of financial information going between departments, locations, or even employees. That's when the real problems begin -- issues like:
- Misstated revenues
- Missed billing opportunities
- Decreases in cash flow and earned revenue
- Increased operating expenses
- Too much time spent with accounting
- Billing mistakes
- Inadequate documentation of order-to-revenue process
All of these are problematic, but for public companies, it's the risk of misstated revenues that casts the longest shadow. Restating or delaying your revenues creates doubt and erodes investor confidence, leading to corresponding hits in your share price. In spite of this, many public companies still rely on spreadsheets for critical revenue recognition and reporting activities -- up to 92% in one survey commissioned by SOFTRAX.
Billing is another area where there should be little margin for error, especially where recurring revenue models are concerned. Subscription-based products and services are only successful when you can maintain positive relationships with your customers -- accurate, timely billing is key to this, and avoids leaving money on the table from missed billing opportunities.
What’s the Solution?
Spreadsheets may be the easy choice, but if your business has any volume of complex revenue recognition or billing, you'll ultimately be better off with a fully automated solution capable of managing your entire revenue cycle. Automating revenue processes doesn't just help you stave off the problems that come with poorly-managed spreadsheet workarounds, but offers real benefits as well:
- Revenue optimization.
- Reduction in operating expenses.
- Compliance with revenue recognition regulations and Sarbanes-Oxley requirements.
- Unprecedented visibility into business performance.
If you’re interested in learning more about how organizations can kick their spreadsheet habits and effectively automate their accounting processes, you can download our free whitepaper, “A Guide for Getting Off Spreadsheets”, by clicking the button below.
Martin Sachs is SOFTRAX's Marketing Manager. An experienced marketing and creative services professional, he was previously active in energy R&D and has provided consulting services to a number of innovative technology and software startups.