What is Revenue Recognition?

Financial literacy isn’t just for the accountants. It’s for every agency owner who wants to understand their business better and set it up for long-term success.

Take the topic of Revenue Recognition. This might sound like financial jargon, but in simple terms, it’s about recognising the revenue your agency earns, at the correct time.

Imagine you’ve signed a 1-year contract with a client for £120K. You won’t be doing all the work in the first month. It’s unlikely you will be invoicing the entire amount in month 1 too.

Often you may be able to divide both the work and the invoices equally across 12 months, recognising £10K each month. But what happens if that is not the case? What happens if you do the work in sprints and/or need to bill the £120k in staged payments?

Variable workload and invoicing can do strange things to your P&L and make it hard to see a clear picture. Enter the concept of Revenue Recognition!

Revenue Recognition is an accounting principle that gives you an accurate picture of your agency’s financial health. By recognising revenue when it’s earned it aligns your income with the related expenses, giving you a more realistic view of your profits.

And it’s not just for big agencies. Whether you’re a small agency or a large one, understanding and applying revenue recognition can help you make informed decisions, plan your resources, and manage your growth effectively.

Are you using Revenue Recognition in your agency?

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