Reasons for CautionBy Lawrence Walsh | Posted 2009-09-24 Email 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.
"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.