Revenue tracking is a best practice
If you ask a typical small business owner how they do their revenue accounting, they might respond that “my accountant takes care of all that”. Dig a little bit deeper by asking “So does that mean your accountant has access to your POS system (or other revenue system)”, and many will reply: “No POS access, just my bank statements. My accountant gets all of my revenue from my bank statements”.
Although this method of using bank deposits as the source data for recording revenue is permissible from a legal standpoint, it violates a best practice in accrual basis accounting known as the Revenue Recognition Principle. In short, under the Revenue Recognition Principle, revenues would be recognized and tracked beginning at the point of sale rather than at the point when money is deposited.
Revenue tracking protects against withheld deposits by your merchant processor
In the first quarter of 2021, a hotel client of Docyt was shocked to find that their merchant processor had not deposited any of their Discover merchant revenues in close to 3 months. The previous year, another client’s merchant processor withheld a $60k deposit that went unnoticed for 6 months. Needless to say, neither client had any kind of revenue tracking process in place that would have allowed them to identify these withheld amounts.
While rare, these situations do happen and without the proper method of tracking your business’ revenues from the point of sale into your bank account, these withheld funds can easily go unnoticed, exposing the business to financial loss.
Revenue tracking eliminates this risk by maintaining a tally, called a receivable, beginning at the point of sale, of funds expected to arrive from each payment method (like Shift4, Amex, EFT, cash, etc.) and then adjusting that tally as those funds arrive into your bank account as deposits. This gives you very clear visibility at all times into how much in deposits are still outstanding for each payment method.
Revenue tracking helps you expand your business
One customer came to Docyt after having missed an opportunity to purchase a new hotel because his previous accountant was unable to produce accurate financials for the lender. Although his books were reconciled and up to date, they had been maintained on a cash basis for years. When the lender required him to produce accrual basis financials, things got messy and the opportunity passed them by.
If you’re planning to expand your business, you may be thinking about taking out a loan in which case your lender will be asking for your financial statements. There’s a good chance your lender will require your financial statements to be generated on an accrual basis. Revenue tracking keeps the revenue side on an accrual basis and provides the lender visibility into your revenues, receivables, and your ability to collect. Providing this visibility will significantly improve your chances for loan approval.
Sophisticated software can automate this entire process
If revenue tracking adds so much value, then why isn’t everyone already doing it? The answer is very simple. It’s because the accounting is more complex and it ultimately takes more time, something that most business owners and accountants just don’t have enough of. Luckily, modern software features like Revenue Tracking in Docyt can automate the entire process so your revenue is tracked from the point of sale all the way into your bank account without having to lift a finger or spend a moment of extra time.
Docyt not only allows you to keep track of your accrual based revenue accounting and tracking on a month to month basis, it also allows you at year end to view the reports on cash basis and still continue to file the tax return on cash basis, simplifying the process of filing even more.
Don’t miss out
You could be missing out on thousands of dollars of revenue you’ve earned that are being withheld and undeposited by your merchant processor, or from customers who have an outstanding balance and you forgot to remind them to pay. Revenue tracking makes it easy to collect all of the money you’ve already earned but haven’t yet collected.
If you’d like to sign up for revenue tracking, visit the Docyt website to schedule a free consultation today.