For RedEnvelope Inc., Valentine’s Day represents a seasonal opportunity for high expectations and similarly skyward sales projections. Unfortunately, the romantic occasion some years back precipitated shares in the online retailer of high-end gifts to tumble more than 25 percent. The sell-off followed drastically reduced fourth-quarter projections credited not only to weak heart-themed sales, but a single number mis-recorded in the cell of a spreadsheet.
That number threw off the cost forecast, resulting in an overestimation of gross margins which–according to experts reporting on the blunder–likely caused the ouster of the CFO, demonstrated a material weakness in financial reporting controls and spurred a lengthy review of the company’s accounting practices.
One mis-typed number in a spreadsheet.
No wonder automation of financial operations continues to gain steam as a key tool toward corporate excellence and growth.
Consistency in accounting, accurate analytics, enhanced forecasting and manageable fair value determination aren’t just the calming bedtime mantra for certified accountants, but true value propositions for companies invested in automated financial services, and in particular, revenue recognition.
Recent research by The Hackett Group, credited more effective use of technology capabilities within finance organizations in examining how world-class companies outperform peers. The global advisory group’s findings estimated a typical large firm ($10 billion in revenue) could save up to $51 million by realigning finance talent, restructuring the service delivery model and retooling through technology, thereby freeing resources for higher value activity and innovation.
The Hackett report noted two other hallmarks of world-class finance organizations: an error rate in customer billings 48 percent lower than typical companies and ability to deliver forecasts 30 percent faster and with more accuracy. Smarter and faster resource allocation decisions are being driven by a high degree of confidence in forecast quality.
“Finance organizations have been working on reducing costs for some time, something that is sure to continue. But, there’s clearly a renewed focus on finding innovative ways to redeploy savings to support enterprise growth.”
— Jim O’Connor, Global Finance and GBS Advisory Practice Leader, The Hackett Group
And when it comes to pursuit of finance operations excellence, size doesn’t matter.
That’s the basis of a CFO.com article noting the biggest barriers to high performance were of the self-imposed variety, including overly complex finance processes and systems.
As the article notes, top performers in various revenue categories (under $3 billion, $3-10 billion and more than $10 billion) demonstrate similar cycle-time performance. The cost benefit of eliminating unnecessary complexity is equally beneficial to companies big and small. That pattern holds true across nearly every transactional area, including account-to-report, purchase-to-pay and custom-to-cash. Which means, per CFO.com, almost any company can benefit from global business services, enterprise process ownership, process standardization and automation.
“..almost any company can benefit from global business services, enterprise process ownership, process standardization and automation.”
Jagan Reddy, SVP, Zuora RevPro, has noted that unlike automation of other business functions, revenue automation software must achieve 80 percent or higher automation.
“If not, the revenue numbers will trickle down to spreadsheets with no return on investment for your automation software,” he said.
Think about the trickle down benefits of financial services automation, specifically revenue recognition, from the perspective of those on the outside looking in (read: investors).
Consistency in accounting is paramount. What about knowing you’re consistently applying your defined revenue recognition rules on all similar transactions handled over and over? When dealing with high volumes, inconsistency can creep in, but a defined and confirmed routine process eliminates that.
Once in the system, the presence of consistent data backed with confidence allows for more detailed analytics and forecasting not as easily handled by the combination of spreadsheets and human intervention. Consistency in accounting trickles down into the concept of fair value determination, which becomes a far more manageable task to identify given a good amount of historical data running through a revenue automation process.
Knowing a company’s annual contract value helps gauge the level of interest in an investment opportunity. It’s about understanding the revenue stream by knowing that value at the beginning, middle and end of an agreement.
Consistency through automated processes leads to faster closing cycles, substantially reduced audit fees and tighter internal controls. Simply put, systematic treatment of data reduces the risk of restatements and the accompanying loss of millions of dollars, not to mention investor confidence. Sorry, we just mentioned it.
Consider this: a recent study of the Securities and Exchange Commission figures shows the agency policing accounting fraud with a renewed vigor these days.
According to the Wall Street Journal, the SEC’s first year-over-year increase in these enforcement actions since 2007 demonstrates the agency’s renewed focus on alleged financial reporting problems which likely went unpunished in the era of big-ticket misconduct such as the mortgage meltdown. As the WSJ article points out, these new cases examined by the SEC are typically of a much smaller scale than such headline-grabbing scandals as an Enron Corp.
SEC investigators, per agency officials, are looking into a broad range of potential accounting fraud, including how companies book revenue, whether they properly value their assets and obligations and whether they properly disclose information to investors.
And some companies still rely on spreadsheets?