The hidden disconnect between sales and financial reporting
Many companies experience a disconnect between their sales and financial reporting processes. This is a common problem across industries because the two processes typically have unique objectives and priorities.
Adhering to revenue recognition GAAP, establishing shared strategies, and using revenue recognition software can help bridge the gap. Read on to find out how.
Understanding the disconnect
At first, the great divide between sales and finance teams may seem confusing. They are both actively involved in driving revenue for the business, after all. But although they have that in common, that is usually where the similarity ends.
Although closely intertwined, with sales influencing finance, these two departments often operate in silos. They have different objectives, and this means they have different priorities, too.
Unique objectives and priorities
The objective of a sales team is to generate revenue. Therefore, they prioritize booking and closing deals. Meanwhile, the objective of a finance team is to maintain financial stability. Therefore, they prioritize financial recordkeeping and accounting.
This explains why there is often a disconnect between sales and financial reporting. Sales teams are focused on turning people into customers. They must target qualified leads, engage with prospects, and convert them into verified sales. Finance teams are focused on the numbers.
Different paths to a common goal
These teams have a common goal — increasing revenue. But they rely on different strategies and tech stacks to fulfil their most important duties. To further complicate matters, they may also follow very different reporting timelines.
Needless to say, this often creates blind spots with far-reaching consequences. To stay competitive, companies must track sales and report revenue accurately. Revenue recognition standards play a big role in this.
The role of revenue recognition standards
The disconnect between sales and financial reporting can lead to misunderstandings in sales revenue reporting. This, in turn, can cause ongoing financial reporting and forecasting issues. Generally accepted accounting principles and revenue recognition standards play a big role in the solution.
GAAP
The generally accepted accounting principles (GAAP) are a set of accounting rules, standards, and procedures. The GAAP principles improve their financial reporting accuracy, consistency, and transparency.
Revenue recognition GAAP identifies how and when companies recognize revenue, standardizing reporting to eliminate errors. The revenue recognition standard, ASC 606, provides a standard framework across industries for recognizing revenue from customer contracts.
The UK follows GAAP principles set in place by the UK Financial Reporting Council (FRC). They are a national version of the international accounting standards set by the International Financial Reporting Standards Foundation (IFRS). Public entities in most European countries are also subject to IFRS.
All public companies in the US must follow US GAAP when preparing their financial statements. These principles are issued, and when necessary, revised, by the Financial Accounting Standards Board (FASB).
Bridging the gap: Strategies to align sales and finance
No company can succeed when there’s a disconnect between sales and financial reporting. It can lead to inaccurate sales and growth forecasting, financial instability, and failed regulatory compliance.
Enterprise resource planning (ERP) software streamlines core business processes, integrating them into a single platform. These processes include everything from manufacturing operations and supply chains to sales, finance, and more.
But each department, division, or team also typically has its own software it relies on.
Align existing software tools
Customer relationship management (CRM) software, for example, manages customer interactions along the sales pipeline, from lead generation through to closed deals. Both ERP software and CRM tools can centralize data, automate repetitive business admin tasks, and offer real-time insights.
Aligning these two systems can mitigate the tech disconnect between sales and financial reporting.
Implement automated revenue management
A disconnect doesn’t only happen in public companies. Even private, owner-managed businesses can experience it. But with the right software, it’s possible to bridge that sales-finance reporting gap.
Using revenue recognition platforms like RightRev can align teams’ sales and revenue reporting.
Track KPIs relevant to both teams
Develop a shared strategy between sales and finance teams, identifying the key performance indicators (KPIs) relevant to both teams.
Revenue growth, for example, shows the sales team if they are hitting the mark or not. It also gives finance teams the critical data they need to plot a path to profitability and financial security.
The takeaway
When the processes of sales and finance/accounting teams don’t align, a disconnect occurs. It can have serious repercussions, such as reporting and forecasting inaccuracies, and even regulatory compliance issues.
Fortunately, there are ways to resolve this misalignment before it can lead to trouble. GAAP principles standardize revenue recognition and financial reporting in general. And automated revenue recognition systems bridge the gap between sales and revenue reporting.
Consider the strategies above for a smooth collaborative process between your sales and financial reporting teams.