Reasons for Caution

By Lawrence Walsh  |  Posted 2009-09-24 Email Print this article Print


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MSPs and professional services providers will benefit from accounting rule changes championed by Apple and other big vendors that allow the immediate full recognition of ongoing services revenue.


How revenues are recorded and financials are tracked will have no impact on the business model of managed services or other technology service delivery models. MSPs and HAAS providers still will be able to offer end users extended contracts with periodic payment plans. Service providers will still have the same cash flow issues, meaning that expenses will apply to incoming revenue and not the upfront recorded amount.

Given the interest level in managed services and consolidation among providers, the accounting rule changes could change the way managed services and professional services organizations are appraised for potential buyers. Currently, a services company is valued based, in part, on the recurrent revenue and ongoing accounts. Upfront recognition of services contracts could make a company look bigger in total revenue, but reduces the volume of recurring revenue.

"It will change the service models, particularly in multiyear relationships, and will require fresh analysis of the balance sheet during a valuation process, essentially moving to cash accounting," says Tim Eades, CEO of

Upfront revenue recognition of services is a neat accounting trick for making a service-provider business look bigger, but, again, Marks points out that the same rule has a negative consequence when contracts are canceled or curtailed.

"I believe this change for MSPs could possibly make a company look larger immediately as the MSP is allowed to book the revenue up front, but I would caution that cancelled contracts will go in the opposite direction and force MSPs to deduct the remainder of the booked revenue," Marks says.

While the change may prove tempting to some MSPs and professional service providers as a way to pump up the size of their businesses, some solution providers say the change isn't worth the aggravation or risk exposure.

"I'll still do it on a monthly basis. It's safer and it reflects the revenue stream. If I got a lump sum payment at the start I would book the entire amount then," says Lawrence Rodis, president of the Strategic Resource Consulting Group in Las Vegas.

Lawrence Walsh Lawrence Walsh is editor of Baseline magazine, overseeing print and online editorial content and the strategic direction of the publication. He is also a regular columnist for Ziff Davis Enterprise's Channel Insider. Mr. Walsh is well versed in IT technology and issues, and he is an expert in IT security technologies and policies, managed services, business intelligence software and IT reseller channels. An award-winning journalist, Mr. Walsh has served as editor of CMP Technology's VARBusiness and GovernmentVAR magazines, and TechTarget's Information Security magazine. He has written hundreds of articles, analyses and commentaries on the development of reseller businesses, the IT marketplace and managed services, as well as information security policy, strategy and technology. Prior to his magazine career, Mr. Walsh was a newspaper editor and reporter, having held editorial positions at the Boston Globe, MetroWest Daily News, Brockton Enterprise and Community Newspaper Company.


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