Private equity-owned healthcare company takes on revenue recognition to strengthen its IPO foundation
Complex revenue arrangements, multiple services and a plethora of payment options create a tangled web for healthcare companies — a web they must untangle to properly account for revenue, especially if they are part of a portfolio or considering a public offering on their own. Adding pressure to complexity, today’s regulatory environment continues to place greater compliance requirements — including sweeping reform from ASC 606 that imposes additional revenue recognition rules and disclosures for public companies.
Identifying root causes
Disparate data systems and flawed processes inhibited the company from properly recording and collecting revenue. Accounting staff relied on Excel spreadsheets and manual entries for revenue and bad-debt calculations — and integrating such manual processes into a sustainable and efficient revenue recognition process required a gargantuan effort and many employee hours. The company’s financial, planning and analytics (FP&A) team performed high-level analytics and tried using a model to drive accounting for revenue but the efficacy of their planning and forecasting was undermined by the lack of a revenue recognition infrastructure — the kind expected of companies positioning for public offering. As a result, at year-end the company had material unexpected write-offs reducing annual revenue that the finance team could not insightfully quantify.
Rectifying processes to bring sound revenue recognition
The company and Protiviti collaborated on a cross-solution approach leveraging accounting, business process and technology experts to create custom-coded reports and optimize and automate processes to manage the revenue cycle more sustainably. The team built embedded controls in processes, which enabled a documentation trail proving the accuracy of revenue. Custom report creation allowed management to assess bad debt and overall receivables at the most granular levels, providing insight into potential bad-debt adjustments or write-offs in real time.
Sound and effective revenue controls and systems build investor trust and optimize liquidity to support future growth and investments.
Protiviti was able to support the build out of a revenue recognition and reserves model with data components that required collaboration among multiple business units. The developed tools have been critical in improving initial revenue recognition as well as providing data points to target areas of cash collection opportunities.