3 Things High Technology and SaaS Companies Need To Know About VSOE to Protect Their Business

High technology and SaaS companies have complex financial metrics to track, including vendor-specific objective evidence (VSOE). VSOE is commonly used by companies that sell software products and services in multiple-item bundles. This form of revenue recognition tracks the fair market value of an item sold individually, as opposed to the assigned sales value of the item sold as part of a multi-item bundle.

Companies that sell items such as bundled hardware, software, support packages may not realize that they have revenue recognition in VSOE. And some companies that do track complex VSOE metrics are doing so in a spreadsheet. Because individuals building these spreadsheets may not understand IRS and Financial Accounting Standards Board (FASB) rules associated with VSOE, data may be prone to error.

1. Possible Tax Penalties
   When mistakes are made, your company could be at risk for costly tax penalties. You may also have to restate your financial statements for your auditors, or if you’re company is public, for your shareholders.
2. Revenue Leakage
   Revenue leakage is another concern when using spreadsheets to track VSOE. It’s important to make sure that you’re representing all of your income in the appropriate time on your PNL statement. If you’re using a spreadsheet for your calculations, you will need to enter those into your financial management system. Then you will need to reconcile that as well. This can be a very time-consuming task to get those calculations accurately represented.
3. Too Long to Close Books
   It may take you too long to close your books if you have a spreadsheet for your calculations, enter that information into your financial system and then reconcile the information. It can be a very time-consuming task to get those calculations accurately represented, which may slow down the presentation to your boss and the stakeholders in the company.

If you have revenue recognition in VSOE, it’s important to make sure you have all of the information you need to properly track this complex metric. Learn more about this subject by downloading the white paper “Mastering the Complexity of Revenue Management.” Or contact a company that specializes in financial management solutions like The Resource Group.

by Marty Schillaci, CEO of The Resource Group