You get paid the same amount every month.
Subscriptions, retainers, memberships, and managed services. Cash arrives on a schedule that has very little to do with when you actually earn it.
You will recognise this if…
- An annual prepayment made one month look extraordinary
- You do not know what portion of billed revenue you have actually earned
- Renewals and cancellations are tracked in a spreadsheet, if at all
- Retainer clients who consume far more than they pay for are invisible
- You cannot state recurring revenue with a number you would defend
Why the close is hard here
These are the four things that most often make the monthly close wrong here — and what has to be true for it to be right.
Cash received is not revenue earned
Money billed in advance is a liability until the service is delivered. Recognised on receipt, revenue spikes in the billing month and disappears in the months you do the work.
Deferred revenue has to be scheduled
Each contract releases into revenue over its own term. Kept accurately, the balance is a real forward obligation. Kept loosely, it is a plug.
Recurring revenue is a defined number, not a vibe
Contracted recurring revenue means something specific and excludes one-off work. Anyone lending to you or buying you will test the definition.
Delivery cost varies while price does not
A fixed fee against variable effort means margin moves per client. Without cost tracked at the contract level, the unprofitable accounts stay hidden.
What we do about it
- Deferred revenue schedule maintained monthly by contract
- Revenue recognised across the service period, not at billing
- Recurring revenue reported on a consistent, documented definition
- Margin at the client or contract level
- Renewal and cancellation activity reflected in the numbers
Covered here: Professional services → · EOS companies →
Questions we get asked
What is deferred revenue?
Money you have been paid for work you have not delivered yet. It is a liability until earned, and it is the account most often wrong in subscription and retainer businesses.
Do you follow ASC 606?
Revenue is recognised across the period the service is delivered, on a documented basis. Where a formal technical accounting position is required, that is work for your CPA.
Can you report on recurring revenue?
Yes, on a written definition agreed up front so the number stays consistent month to month and holds up to outside scrutiny.
What if our contracts are all different lengths?
Each is scheduled on its own term. That is exactly what the deferred revenue schedule is for.
Not sure this is you?
Most owners sit across two of these. A short conversation sorts out which parts actually apply.
Talk to a finance pro →