Accounting for event companies presents some unique challenges due to the nature of the business. Revenue recognition for multi-element contracts, cost tracking across different events, and managing vendor and contractual obligations can all make finance and tax compliance a bit of a headache.
When it comes to how these issues are handled, the industry seems to be moving towards implementing digital accounting solutions, leaving more traditional approaches behind. But how do the two stack up for events companies?
First, some quick definitions:
Traditional accounting: Traditional accounting involves using physical ledgers, journals, and spreadsheets to record, summarize, and report financial transactions and information. In traditional accounting, financial transactions are manually entered into various books of accounts using double-entry bookkeeping, where each transaction has a corresponding debit and credit entry.
Digital accounting: Digital accounting involves the automation and digitization of various accounting processes, replacing traditional manual methods with computerized systems, including accounting software, cloud-based platforms, and specialized tools designed for accounting and bookkeeping purposes.
What are the pros and cons?
Efficiency and Time Savings:
Digital accounting automates various accounting processes, such as data entry, calculations, and report generation, saving time and allowing event companies to streamline their financial operations. It eliminates manual and repetitive work, reducing the potential for errors and increasing overall efficiency.
On the other hand, traditional accounting methods have been used for decades, and many accountants and financial professionals are well-versed in these practices. For event companies with personnel who are more comfortable with manual processes and have limited experience or expertise with digital accounting software, traditional methods may be easier to implement and navigate.
For small event companies with limited financial resources or low transaction volumes, the initial investment in digital accounting may outweigh the perceived benefits. In such cases, traditional accounting methods may be more cost-effective and sufficient to manage the process, making digital accounting unnecessary.
However, it’s worth considering the benefit of a fractional approach where you gain access to the efficiencies and improved accuracy without investing in the systems yourself.
Cost Tracking and Budget Management:
Digital accounting software facilitates accurate and detailed tracking of costs associated with events. It allows event companies to allocate costs to specific events, track expenses in real time, and compare actual costs against budgeted amounts. This helps identify cost overruns, manage budgets effectively, and improve financial planning for future events.
Traditional accounting can provide the same data, but compiling, extracting, and analyzing data manually is more labor-intensive and time-consuming.
Revenue Recognition and Contract Management:
Events often involve complex revenue recognition scenarios, such as multi-element contracts and deferred revenue. Digital accounting systems can handle these complexities and automate revenue recognition calculations based on accounting standards (e.g., ASC 606). Additionally, digital accounting software can assist in managing contracts, tracking contractual obligations, and ensuring compliance with revenue recognition guidelines.
However, some events companies may have unique or complex accounting requirements better accommodated by customized manual processes. This could include specific revenue recognition rules, specialized cost tracking, or contractual obligations that are not easily managed within a standard digital accounting system. Traditional accounting allows for more flexibility in tailoring processes to meet specific needs.
Reporting and Compliance:
Digital accounting software offers robust reporting capabilities, allowing event companies to generate various financial reports, including income statements, balance sheets, and cash flow statements. These reports can be customized, tailored to specific requirements, and easily generated. Furthermore, digital accounting systems often incorporate compliance features, helping event companies meet regulatory requirements and tax obligations.
Of course, traditional accounting methods also provide companies with the information they need to demonstrate compliance and complete the necessary financial reports. Again, the traditional method may be sufficient for smaller companies with simple transactions.
Data Security and Disaster Recovery:
Digital accounting systems provide data security measures, including encryption, user authentication, and regular backups of financial data. This ensures the confidentiality and integrity of financial information. In the event of a data loss or system failure, digital accounting systems typically have backup and disaster recovery mechanisms, reducing the risk of data loss and ensuring business continuity.
But, as cyber-attacks become more frequent and sophisticated, some events companies prefer to have physical control over their financial records. Traditional accounting methods rely on physical documentation, which can be stored securely within the company’s premises. This may provide a sense of control and mitigate potential risks associated with data breaches or unauthorized access to digital accounting systems. In addition, in certain instances, stakeholders, such as investors or regulatory authorities, may prefer to review physical documents for auditing or legal purposes. Traditional accounting, with its reliance on paper-based records, can provide tangible evidence and a documented paper trail that may be perceived as more reliable or authoritative in specific contexts.
While some events companies may still rely on traditional accounting methods, the benefits offered by digital accounting, such as efficiency, real-time insights, cost tracking, and complex revenue recognition, have led to the increasing adoption of digital accounting systems in the industry. As technology advances, more events companies will likely shift towards digital accounting to enhance their financial management practices.