Oops! Something went wrong while submitting the form.
Sign in
Get a Demo
See your data in HubiFi < 2 days
Get clear answers on the ASC 606 effective date for private companies, plus tips to stay compliant and avoid common revenue recognition mistakes.
Are you trying to manage ASC 606 compliance with spreadsheets? If so, you're likely feeling the pain of juggling complex contracts, pulling data from different systems, and dedicating precious team resources to manual calculations. The transition has been a heavy lift for private companies ever since the original asc 606 effective date for private companies was announced. But compliance doesn't have to be a constant struggle. There is a more efficient way to handle revenue recognition that ensures accuracy without the burnout. This guide walks you through the common challenges and shows how automation can solve them for good, turning a regulatory burden into a strategic advantage.
If you’ve heard the term “ASC 606” floating around, you might be wondering what it means for your private company. In short, it’s the accounting standard that completely changed how businesses recognize revenue from customer contracts. While it might seem like just another rule to follow, understanding and implementing it correctly is crucial for your financial health, investor relations, and overall growth. It’s not just about compliance; it’s about ensuring your financial reporting is transparent, consistent, and accurate. Let’s break down what ASC 606 is, how it differs from the old rules, and why you can’t afford to overlook it.
Think of ASC 606 as a universal language for reporting revenue. Created by the Financial Accounting Standards Board (FASB), it replaced older, less specific guidance with a single, comprehensive framework. The primary goal is to make revenue recognition consistent across all industries. This standardization helps investors, lenders, and leadership compare financial results between different companies more easily. For your private company, this means presenting a clearer, more trustworthy picture of your financial performance. This level of transparency is key to building confidence with stakeholders and painting an accurate picture of your company’s health, which you can learn more about on the HubiFi blog.
The biggest change with ASC 606 is the shift in when you recognize revenue. The old approach was often based on a general principle of recording revenue when it was "earned." The new standard is far more specific and is centered on the promises made in your customer contracts. ASC 606 introduces a five-step plan that guides you through the process:
Getting on board with ASC 606 is more than just a compliance task—it’s a strategic move for your business. Properly adopting the standard makes your company's financial story clearer, which builds significant trust with investors and can open up new opportunities for growth. On the flip side, ignoring it can cause serious headaches. You could face tougher audits, higher compliance costs, and delays in securing funding. A damaged reputation is also a real risk. Getting your revenue recognition right is fundamental to your financial health. If you're feeling overwhelmed by the transition, our team can help you automate the process and ensure you're compliant without the stress.
To understand where we are now with ASC 606, it helps to look back at the original rollout plan. The Financial Accounting Standards Board (FASB) initially set a timeline that gave private companies a bit more breathing room than their public counterparts. This phased approach was meant to help smaller organizations prepare for a significant shift in how they report revenue. While these dates have since been updated, knowing the original deadlines provides important context for why the transition has been such a major topic of conversation in the finance world. It also highlights the standard's complexity and the need for robust systems to manage compliance.
The first deadline for private companies was set for annual reporting periods beginning after December 15, 2018. For most businesses operating on a standard calendar year, this meant the new rules officially kicked in on January 1, 2019. This gave them one year longer to prepare than public companies, who had to adopt the standard in 2018. The idea was to let private entities learn from the challenges and successes of the public companies that went before them. This extra time was crucial for gathering the right data, assessing contract terms, and getting accounting systems ready for the change.
While the 2019 deadline was firm, the FASB also gave private companies the choice to adopt ASC 606 early. Some businesses jumped on this opportunity. Why? Adopting early allowed them to align their financial reporting with public companies, which could be a major advantage when seeking investment or comparing performance against competitors. For forward-thinking companies, it was also a chance to get ahead of the curve, implement new automated revenue recognition systems, and iron out any process kinks before the mandate went into full effect. This proactive approach demonstrated a commitment to transparent and standardized financial reporting.
At its core, the original deadline required companies to fundamentally change how they recognized revenue. The goal was to create a more consistent framework across all industries, making it easier for investors and stakeholders to compare financials. Under ASC 606, the rule is simple in theory: you recognize revenue when you transfer promised goods or services to a customer. The amount you recognize should reflect what you expect to receive in exchange. This principle required companies to look closely at their customer contracts and performance obligations, a task that proved to be a heavy lift for many teams relying on manual processes.
Just when finance teams were gearing up for the ASC 606 transition, the world threw a massive curveball. The global pandemic disrupted nearly every aspect of business, and accounting standards were no exception. Recognizing the immense pressure on private companies, the Financial Accounting Standards Board (FASB) stepped in to provide some much-needed breathing room. This wasn't about scrapping the new rules but about acknowledging the reality that businesses needed to focus their resources on immediate operational challenges like shifting to remote work and managing unpredictable revenue streams.
The extension gave companies a critical opportunity to regroup and manage the transition without the added stress of an imminent deadline during a crisis. It was a practical move that helped many businesses stay afloat while still preparing for the eventual shift to the new revenue recognition standard. For many, this extra time was the key to implementing ASC 606 correctly rather than rushing through a compliance checklist. It allowed for more thoughtful planning, system upgrades, and team training, which are all essential for a smooth transition.
In the spring of 2020, it became clear that businesses were stretched thin. In response, the Financial Accounting Standards Board (FASB) made the official decision to give certain companies more time to adopt the new revenue recognition and lease standards. This wasn't a free-for-all; the extension was specifically targeted at private companies and not-for-profits that hadn't yet issued their financial statements. The board understood that these organizations were facing significant operational hurdles and that forcing a major accounting change at that moment would be counterproductive. This decision provided a welcome relief, allowing teams to focus on managing the immediate economic uncertainty.
So, why the delay? The core reason was simple: the immense difficulties caused by the coronavirus pandemic. Many companies had to pivot to remote work overnight, manage supply chain disruptions, and handle unpredictable revenue streams. Taking on a complex accounting overhaul like ASC 606 was a massive ask. The FASB’s deferral gave private companies an extra year to get their systems and processes in order. This wasn't just about pushing back a date on the calendar; it was about ensuring that companies could implement the standard thoughtfully and accurately, leading to better financial reporting in the long run.
With the extension in place, the timeline shifted. Originally, private companies were required to adopt ASC 606 for annual reporting periods beginning after December 15, 2018. The deferral pushed this back by a full year. The new effective date meant private companies had to apply the standard for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. While this deadline has now passed, understanding this timeline is crucial for reviewing past financial statements and ensuring your company’s reporting has been compliant since the new effective dates took hold.
If you've found the shift to ASC 606 to be a major headache, you're not alone. While the standard aims to create a universal language for revenue recognition, the practical application can be a bumpy road, especially for private companies. The challenges usually boil down to a few key areas that can make compliance feel like a full-time job. Unlike larger public corporations that had years and dedicated teams to prepare, private companies often face these hurdles with smaller teams and fewer dedicated resources, making the transition particularly tough.
It’s not just about learning new rules; it’s about fundamentally changing how you track and report the money you earn. This involves deep-diving into your contracts, re-evaluating your processes, and often, overhauling the technology you use to manage it all. The transition requires a significant investment of time and attention from your finance team—resources that are already stretched thin. Let's break down the three biggest obstacles you're likely facing and how to think about them.
Remember when a sale was just a sale? These days, contracts are much more layered, especially with the rise of subscription models, usage-based pricing, and bundled services. Your deals might include multiple components, variable pricing, or performance-based incentives, all of which ASC 606 requires you to identify and account for separately. As one source puts it, "Deals with many parts, changing prices, or bundled services can be hard to track," and that's the core of the challenge. You have to unpack each contract, pinpoint every distinct performance obligation, and assign it a transaction value. Doing this manually across hundreds or thousands of contracts is not only tedious but also leaves a lot of room for human error.
The information you need for ASC 606 compliance rarely lives in one convenient place. Your contract terms are probably in your CRM, billing details are in your payment processor, and your general ledger is in your accounting software. "Information is often in different places (sales, accounting, etc.), making it hard to get a full picture." Manually pulling reports from each system and trying to stitch the data together in a spreadsheet is a recipe for mistakes and wasted hours. To get revenue recognition right, you need a single source of truth, which is why seamless integrations with your existing systems are critical for accurate, automated reporting and a clear view of your financials.
Let's be honest: most private companies run lean. You likely don't have a massive accounting department with a team dedicated solely to revenue compliance. Your team is already busy closing the books, managing payroll, and handling day-to-day financial tasks. Adding complex ASC 606 calculations to their workload can lead to burnout and costly mistakes. As one analysis notes, "Without automated tools, managing all the data and reports can require more people"—a luxury most private companies can't afford. This resource strain is a major reason why manual compliance isn't a sustainable strategy for a growing business. You can find more insights on streamlining financial operations on our blog.
Transitioning to ASC 606 can feel like a huge undertaking, but you can make it manageable by breaking it down into a clear, actionable plan. Instead of seeing it as one giant hurdle, think of it as a series of steps that will ultimately give you a much clearer picture of your company’s financial health. A successful implementation isn’t just about compliance; it’s about building a stronger, more data-driven foundation for your business. By focusing on collaboration, education, technology, and your contracts, you can create a process that’s smooth and effective. Here’s how to get started.
The first step is to get everyone on the same page. ASC 606 isn’t just an accounting problem—it touches sales, IT, legal, and operations. You’ll need to get your accounting, IT, and sales teams to cooperate to ensure data is accurate and processes are smooth. Your sales team structures the deals, your IT team manages the data infrastructure, and your accounting team reports on it all. If they aren't communicating, you’ll end up with data silos and reporting headaches. Create a cross-functional team to lead the transition, and hold regular check-ins to keep the lines of communication open. This ensures everyone understands how their work impacts revenue recognition and helps you build seamless integrations between your systems.
Once your teams are talking, you need to make sure they’re all speaking the same language. It’s crucial that your staff understands ASC 606 and how it applies to their specific roles. This goes beyond the finance department. Your sales team needs to know how different contract terms, like discounts or rebates, will affect when revenue is recognized. Your project managers need to track performance obligations accurately. Provide clear training materials, host workshops, and offer resources they can turn to with questions. An informed team is your best defense against compliance missteps and will help you maintain accuracy long after the initial transition. For more helpful guides, you can always find fresh insights in the HubiFi blog.
Let’s be honest: spreadsheets aren’t going to cut it for ASC 606, especially if you’re dealing with a high volume of complex contracts. Manual tracking is not only time-consuming but also incredibly prone to error. This is the perfect opportunity to get tools that can automatically handle complex revenue recognition tasks. Automation takes the guesswork out of calculating transaction prices, allocating revenue, and recognizing it over time. It frees up your team to focus on strategic analysis instead of manual data entry. An automated system gives you real-time visibility into your financials, so you can make smarter decisions faster. If you're ready to see how automation can transform your process, you can schedule a demo with HubiFi to see it in action.
Your customer contracts are the foundation of ASC 606 compliance. The entire five-step model starts with identifying the contract, so you need a solid grasp of what’s in them. It’s time to carefully review your customer contracts to understand all your promises and obligations. Look for distinct performance obligations, variable consideration, and any non-standard terms that could complicate revenue recognition. This isn’t a one-time task. You should establish an ongoing review process to ensure new contracts are structured correctly from the start. This proactive approach will save you from having to untangle complex issues down the road and ensures your revenue reporting is always accurate and defensible.
If you’ve been putting off the transition to ASC 606, it’s time to move it to the top of your to-do list. The effective date has passed, and delaying compliance any longer introduces significant risks to your business. It’s not just about following rules; it’s about securing your company’s financial health and future opportunities. Let’s break down what’s really on the line.
Think of ASC 606 as more than just a regulatory hurdle. Following the standard is a way to build a strong financial foundation, work more efficiently, and create opportunities for your company to grow. Without it, you’re operating with an inaccurate picture of your financial health. This can lead to misinformed strategic decisions, trouble passing audits, and potential restatements that damage your credibility. Inaccurate revenue figures can ripple through your entire business, affecting everything from sales commissions to budget forecasting. Ultimately, non-compliance isn’t just an accounting issue—it’s a business risk that can quietly undermine your operations and stability.
Are you planning to seek funding, apply for a loan, or consider an acquisition in the future? If so, ASC 606 compliance is non-negotiable. Accurate financial reports make investors and lenders trust your company more. When potential partners perform due diligence, your financial statements will be one of the first things they scrutinize. Non-compliance is an immediate red flag that signals poor financial controls and a lack of discipline. On the other hand, clean, compliant books show that your company is well-managed and transparent, making you a far more attractive candidate for investment and giving you a stronger position at the negotiating table.
A common misconception is that ASC 606 will change your company’s total profit. In reality, ASC 606 changes when you record income, not the total amount of profit or loss your company makes. However, this timing shift is critical. It can cause your profits to move from one period to another, which directly impacts key performance indicators like Monthly Recurring Revenue (MRR) and deferred revenue. For subscription-based businesses, getting this wrong can completely distort your growth story. If you're unsure how to start or need help, an accounting expert can guide you through the process and ensure your financials are accurate and compliant.
If the thought of manually applying the five-step model to every single contract makes you want to hide under your desk, you’re not alone. For private companies, especially those with high transaction volumes or complex contracts, manual compliance is not just tedious—it’s a recipe for errors. Spreadsheets can only take you so far before they become unwieldy and prone to mistakes that could put you at risk during an audit.
This is where automation changes the game. Instead of treating ASC 606 as a mountain of administrative work, you can use it as an opportunity to streamline your financial operations. An automated revenue recognition solution takes the heavy lifting off your team’s plate. It can systematically analyze contracts, allocate transaction prices, and recognize revenue according to the proper guidelines, all without manual intervention. This not only ensures accuracy and consistency but also frees up your finance team to focus on strategic analysis rather than data entry. Think of it as giving your team a powerful tool to work smarter, not harder.
As your business grows, so does the complexity of your revenue streams. You might be dealing with bundled services, variable pricing, or multi-part contracts that change over time. Manually tracking these performance obligations for hundreds or thousands of transactions is a significant challenge. An automated system is built to handle this scale and complexity effortlessly. It can process a high volume of transactions, correctly identifying and separating performance obligations for each one. This means you can confidently grow your business without worrying that your accounting processes will crack under the pressure. It ensures every dollar is accounted for correctly, every time.
Complying with ASC 606 isn't just about checking a regulatory box; it's about gaining a clearer, more accurate picture of your company's financial health. When you automate revenue recognition, you get access to real-time data and analytics. Instead of waiting until the end of the month to see how you’re performing, you can pull up-to-the-minute reports and dashboards. This visibility helps you build a strong financial foundation and make smarter, data-driven decisions about your company's future. It transforms compliance from a backward-looking exercise into a forward-looking strategic tool that can help you identify trends and seize growth opportunities.
Adopting a new tool shouldn't mean overhauling your entire tech stack. The best automation solutions are designed to work with the systems you already use. Look for a platform that offers seamless integrations with your existing CRM, ERP, and accounting software. This creates a unified data environment where information flows automatically from sales to finance, eliminating data silos and the need for manual reconciliation. When your systems are connected, you create a single source of truth for your revenue data, which improves accuracy across the board and makes audit preparation much simpler.
Making the switch to ASC 606 doesn't have to be a solo mission. The key is to equip yourself with the right resources and support from the start. Think of this as your toolkit for a smoother, more confident transition. By breaking the process down into manageable steps and leveraging the right expertise, you can get your systems and financials aligned with the new standards without derailing your day-to-day operations.
When it comes to compliance, your first stop should always be the source. The Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants (AICPA) provide the official standards and guidance. These organizations are responsible for setting the rules, so their websites are packed with the most accurate information. For instance, when the pandemic created uncertainty, the FASB announced it would give more time to private companies that hadn't yet issued their financial reports. Keeping an eye on their official publications ensures you’re working with the latest deadlines and requirements.
Good organization and documentation are the bedrock of ASC 606 compliance. You need clear, repeatable steps to determine when revenue should be recognized. Doing this manually with spreadsheets is a recipe for errors, especially for high-volume businesses. The right software can automate these complex calculations and create the audit trail you need. Look for a solution that can handle revenue recognition automatically and integrate seamlessly with your existing accounting software, ERP, and CRM. This creates a single source of truth for your financial data and frees up your team to focus on strategy instead of manual data entry.
You don't have to become an ASC 606 expert overnight. If you're feeling stuck or just want a second pair of eyes on your plan, bringing in a specialist can make all the difference. As one expert notes, "If you're unsure how to start or need help, an accounting expert can guide you." Consultants can help you interpret the standard for your specific business model, review your contracts, and map out an implementation plan. A quick data consultation can often clarify your next steps and save you countless hours of guesswork.
Even with deadline extensions, a successful transition requires a solid plan. Start by outlining every step of the process, from initial contract reviews to final system implementation. Assign clear responsibilities to your team members and set realistic deadlines for each milestone. While the FASB did defer effective dates to give companies more breathing room, that extra time is best used for careful planning and testing. Map out the resources you’ll need—whether it’s staff time, a software budget, or consulting fees—to ensure your project stays on track and delivers accurate, compliant financial reporting.
In simple terms, what is the biggest change ASC 606 introduced? The most significant shift is in when you recognize revenue. Before, the rules were more general, and you’d often book revenue when you felt it was "earned." ASC 606 gets much more specific. It requires you to recognize revenue as you fulfill the specific promises made to your customer in a contract. This forces a much closer look at your contracts to ensure you're reporting income at the correct time for the exact service or product delivered.
We're a small business with straightforward contracts. Does ASC 606 still apply to us? Yes, the standard applies to all companies that have contracts with customers, regardless of size. While your implementation might be simpler than a large corporation's, you still need to apply the five-step framework to your contracts. The goal of the standard is to create consistency across the board, so even if your deals seem simple, you need to document how you’ve assessed them against the new rules to ensure you're compliant.
Will adopting ASC 606 actually change how much profit my company makes? This is a common point of confusion. ASC 606 doesn't change the total amount of profit you'll make from a contract over its entire life. What it does change is the timing of when you recognize that revenue and profit. This can cause significant shifts in your financial statements from one period to the next, which impacts key metrics and your company's financial story, even if the total value of the deal remains the same.
My company is behind on implementation. What are the immediate risks? Delaying compliance can create serious problems. The most immediate risks are facing a difficult and costly audit or having your financial statements rejected by lenders or potential investors. Inaccurate financials can also lead you to make poor strategic decisions based on a flawed understanding of your company's performance. Getting compliant is essential for maintaining trust with stakeholders and securing future growth opportunities.
What's the most common mistake companies make when trying to comply with ASC 606? The biggest mistake is underestimating the effort involved and trying to manage everything manually in spreadsheets. While it might seem manageable at first, this approach quickly becomes a source of errors, especially as your business grows. It creates a process that is difficult to scale and nearly impossible to audit effectively. Relying on manual tracking often leads to inaccurate reporting and wastes valuable time that your team could be spending on more strategic work.
Former Root, EVP of Finance/Data at multiple FinTech startups
Jason Kyle Berwanger: An accomplished two-time entrepreneur, polyglot in finance, data & tech with 15 years of expertise. Builder, practitioner, leader—pioneering multiple ERP implementations and data solutions. Catalyst behind a 6% gross margin improvement with a sub-90-day IPO at Root insurance, powered by his vision & platform. Having held virtually every role from accountant to finance systems to finance exec, he brings a rare and noteworthy perspective in rethinking the finance tooling landscape.
Meet with an expert in revenue recognition and order-to-cash accounting and automate revenue close.
*Or watch 2 minute demo here.
Power your high-volume business's revenue compliance and reporting needs with one platform.
