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Navigating the green rush: Building or investing in a cannabis business in California

Adaptability is a must for any company but perhaps more so for cannabis businesses. They’re dealing with conflicting state and federal laws, evolving regulatory interpretations at the local level, new competition seemingly by the day, and an array of issues that are tough to surmount. Plus, there’s a lot of opportunity.

How to navigate the tailwinds and headwinds while building a solid, sustainable business? Knowledge about the latest challenges, market landscape and regulatory challenges will take you far. That’s why RoseRyan is hosting an informative webinar for California cannabis companies and investors just starting out or trying to make their way in this fast-moving market.

On Wednesday, October 11, I’ll be hosting a one-hour webinar with Paul Lessard, president and chief scientist at Delta9 Labs (a RoseRyan client); Michael Rosenblum, corporate attorney with Thompson Coburn LLP’s cannabis practice; and Adam Spiker, co-founder of Southern California Coalition. We’ll go over the hot topics and unique challenges facing California cannabis businesses nearly a year after state voters approved adult recreational use of marijuana.

On the agenda

Among the meaty topics we’ll address is the state of the industry in our region. We’ve seen intense activities from new, emerging and maturing companies across the spectrum—from growers and distributors to manufacturers, dispensaries, and edibles retailers—as they find and establish their footing in a shifting landscape. They’re operating in a cone of uncertainty as the details around their industry continue to shake out, and they’re continuing to process the recently passed Medical and Adult-Use Cannabis Regulation and Safety Act.

For companies entering the field, if they do manage to meet regulatory requirements and get a permit to set up shop, can they find real estate? How can they protect their intellectual property when state and federal guidelines differ? What are the legal considerations (choosing the right entity upfront is essential)? And how open will banks be to their business?

Other important issues surround the products that need to be worked out. Lessard, who’s been in the cannabis industry for seven years, will be talking about how companies can shift from cultivated to extracted products and the dangers of pesticide contamination.

The road ahead

Although there are challenges, there are also many opportunities. We advise taking a strategic long view and think through the business three to five years from now. To stay upright among the changing winds, keep up to date with current regulations and proposals. Permitting, licensing, applications and the like affect everyone’s time to market and the expenses that go into building and developing the business.

It might look like a rocky road ahead, but when you’re in the know and on top of the latest industry news and trends, it can be a very successful journey.

I invite you to get more actionable insights with our webinar “The Pot Thickens: Building a Successful Cannabis Business in California” by registering here.

Chris Vane is a director at RoseRyan, where he leads business development for this finance and accounting consulting firm’s cannabis, high tech and cleantech practices. He can be reached at cvane@roseryan.com, or call him at 510.456.3056 x169.

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Don’t go it alone—why every cannabis company needs the right set of partners

It’s all about who you know. In the high-velocity world of cannabis companies, this mantra is so true. When starting out or expanding into new territory, with limited resources and an uncertain future, companies often don’t have all the knowledge, skills or talents they need in-house. A well-built ecosystem provides a solid network of trusted partners that can help them thrive, guide them through sticky situations and offer them levels of expertise that fall outside their internal capabilities.

Solid partnerships are a must for fast-moving companies poised for growth. There are so many strategic decisions on the table that they need to tread carefully at every step. We’ve seen a lot of ingenuity to date with cannabis companies planning for the legal adult-use market in terms of developing promising partnerships, with tight supply chains tying together growers/cultivators, manufacturers, distributors, dispensaries and the like.

In our series of blog posts on the cannabis market so far, we’ve covered strategy setting and lessons learned from other industries. Another critical success factor is identifying the right set of strategic partners, to develop symbiotic relationships that will help the company move forward fast, stay agile and maintain the level of integrity to make it in this increasingly legalized sector. The host of regulatory, compliance, finance, accounting, HR and other issues facing this industry make it essential to easily access experts, specialists and consultants where and when you need them.

Order of the day: A well-rounded support system

It’s not a matter of doing a search on Yelp for the best attorneys in town—professional services are word-of-mouth businesses. You need to find the right partners—accountants, tax advisors and other pros who are a good fit for your company, know your industry and can work well with you for years to come.

To develop and nurture an ecosystem that will be flexible to your changing needs and growth, keep the following principles in mind.

  • Establish relationships early. Things can change fast, so you need an ecosystem of trusted advisors you can call upon when needed. Once you firm up a relationship with someone you trust, you’ve got a go-to source for references for other partnerships. Ask the professionals you trust who they trust!
  • Look for the kind of partners that can grow with you. Your needs are going to change at every stage of growth. So, look for people who have worked not only at startups if that’s where you’re at now, but also larger companies. Be sure the people on board have worked at different size companies across various levels of growth and lived through different milestones. An IPO or merger may seem light years away, but you want people who will help you think of such future possibilities for when the time for a mega transaction does arrive. You don’t want to hit a roadblock just as you’re trying to go forward.
  • Be sure they’ll give you real-world advice. When you’re in an industry that’s in the midst of gathering real steam, news about competitors is hard to come by. Some service providers are just now getting their heads around the industry following California’s approval of adult-use cannabis in November 2016. Potential partners who are already in the trenches are your eyes and ears as to what others in your field are doing.
  • Seek out a mix of experiences. How much experience does your partner have with cannabis companies like yours? How much attention do they pay to the industry and the regulations that affect it—not just state regs but the FDA and other compliance issues? You want to partner with people who have worked closely with fast-growing startups, such as tech companies, and highly regulated industries, such as biotech and life sciences companies, and know the likely challenges you’re going to face on your journey.
  • Prioritize transparency. Trust is huge in this space. You need to know who you’re dealing with as you develop any tightly wound partnership. Get the answers you need to ensure that you can trust what they’re doing for you now and later on.

Gather a well-rounded team

View the network of partners you build around your company as a strategic team. Do these partners have your back? Will they work alongside you and keep your best interests in mind at all times—or do they have an “us vs. them” mentality?

You’ll probably appreciate a partner in each of these categories:

  • Tax: You want to keep on top of reporting and filing deadlines at the federal, state and local levels, and be sure the information you provide can stand up to an audit.
  • HR/benefits: Outsourced benefit providers can keep you honest by ensuring you pay employees properly and meet your payroll tax obligations. Also, they best know the labor laws and what you need to do to be in compliance.
  • Legal/compliance: It would be a mistake to wait until you hit a legal snag to call in the lawyers. Many questions arise—protecting intellectual property, making sure that you’re making moves within legal limits, hiring and firing employees appropriately—and you need someone you can trust to bounce off ideas and get actionable advice in return.
  • Finance and accounting: A solid finance foundation will set apart cannabis companies. Finance experts can lay the groundwork for financial discipline and a workable set of internal controls, reliable reporting, and a mindset that’s ready for investors.

Partner up for the future

The challenges facing cannabis-related companies are huge. You need to be agile in an ever-changing environment, set up a strategy and foundation that will last and grow, all while getting your product out there, keeping watch on compliance matters and operating efficiently. Partners that know what you’re going through can guide you on the best moves to make. They have you covered for what you don’t know.

In an industry that is still half in the shadows—legalized only in parts of the country and not yet at the federal level—companies that can show they have always had a solid reputation will differentiate themselves. Be sure the partners you choose are highly professional with values and principles that match yours. The connections you forge now should be seamless, with you and your partners having the same goals in mind—to help you reach your milestones and achieve growth.

Maureen Ryan, vice president, heads up business development at RoseRyan. From the early startup to the large enterprise, she has seen the emotional rollercoaster of finance challenges at cannabis businesses, tech companies and other fast-paced organizations. Maureen spent her early career in various engineering, sales and marketing roles at Nortel Networks, Bay Networks, Quantum Corp. and General Dynamics.

Chris Vane is a director at RoseRyan, where he leads the development of the finance and accounting consulting firm’s cleantech and high tech practices. He helps fast-moving companies calm the chaos at any stage. He can be reached at cvane@roseryan.com, or call him at 510.456.3056 x169.

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Building a strategic roadmap: 6 questions every new cannabis business needs to ask

A giant window opened up when Californians approved the adult use of cannabis a few months ago. Startups and companies looking to expand are taking advantage of the opening, but they have to act fast. As time goes on, it’s going to keep narrowing and could completely shut down once big businesses start streaming into the market.

That’s just one of the many threats facing entrants to this space, where it’s illegal at the federal level, legalization is limited to a handful of states for now, financing options continue to be finite, and tax questions will persist for some time. Amid the risks lies real potential, and we’re running a series of blog posts on how cannabis businesses can set themselves up to fully embrace it.

During this exciting time, it’s essential for these companies to set a solid foundation that includes realistic assumptions about their viability and the competitive landscape over the next five years. To get started, we suggest folding in the following six questions as you prepare for a successful entry or expansion into the cannabis industry.

1. What’s the vision?

Work out a strategic vision and develop a roadmap to get you where you want to go. Here’s where you plot out how big and fast you hope your business will grow based on a host of assumptions. These assumptions need to be realistic and include plans for bumps along the way. Reach out to experts who know the space and have experience navigating similar territory.

2. What’s your value proposition?

You’re entering a hot market and the rivalry is going to be tough. Your value proposition needs to be defensible, to not only win over investors but to be sturdy enough to withstand a dynamic environment. Think of the roadblocks potential rivals will put in your way. Can you stop them with what differentiates your company and product from the rest?

Zero in on the unique value your company adds to the sector, and consider how that may evolve as you prepare to go to market. Without understanding your true value, you will be lost in the ever-increasing competition.

3. How can you build in agility?

From the get-go, aim for a corporate culture that practices strong operational and business know-how and can handle rapid change. Volatility is going to be with this industry for awhile, so build up and plan for nimbleness that can handle these change drivers:

  • Scalability: When the time comes, will what you’re developing be able to scale fast? Why or why not?
  • Competition: You’ve got a great idea and so do a lot of other entrepreneurs. Factor in realistic competitive pressures and how you’ll beat them or ride them out.
  • Deals: Opportunities and markets will open up—and when they do, you’ll need to be ready so that you can act fast. Be sure your house is in order so that you’re able to quickly take advantage of opportunities as they arise.
  • Complexity: It’s an ongoing reality—regulations for one thing are uncertain and will change. As your business grows, so will the challenges you’ll face. How will the business stay on top of regulatory changes and adjust when necessary?
  • Unexpected risks: When operating in uncharted territory, expect the unexpected, and prepare to pivot. That’s exactly what a Bay Area nursery did after their crops were stolen twice—the founders shifted their model from harvesting buds of cannabis plants to selling clones. This move differentiated them in the marketplace and gave them a way to get their product to market faster.

4. What’s your fundraising strategy?

Founder and family cash can run out mighty quickly. Be sure you know your cash flow for the next one, six and twelve month time frames for your operations. Map out a strategy for getting you through the ups and downs of the start stage and propelling you toward the growth phase.

Think through who you want your investors to be, how you’ll find them, and your expectations for what you want from them. Investors look for management teams that possess strong financial discipline. How efficient can you be with your use of funds—how will you make the most of it?

5. How can you ensure you always have an “A” team?

Throughout the lifecycle of your business, your skills needs will shift, but you’re always going to want top talent. When you’re not at the point of hiring full-time employees for all spots and specialties, you can lean on outside assistance to ensure that you have the right talent when needed, you don’t burn out the people you have, and outside assistance can fold in best practices for knowing when to hire up.

This isn’t a dilemma that should weigh you down with worry—in fact, it should bring relief. Get to know top-notch consultants who can expertly guide you on when a position should be outsourced or brought in-house.

6. How are you building in room to grow?

Everything feels “here and now” when you’re starting up a new venture, but long-term value is a goal you’ll want to start climbing toward ASAP. How can you build up a loyal client base and keep expanding it? How capital efficient can you operate to withstand the unexpected twists and turns ahead?

Create tight partnerships with a built-out ecosystem of specialists and experts (look for growth partners who have the expertise to help you expand and grow quickly) to help you make smart choices.

Ready to hit the gas?

What’s needed now is a clear picture for how the company will progress over the next few years. If it’s hard to envision on your own, experts who have followed similar journeys can work with you to develop a roadmap that clears the way forward. It should be built on best practices, clear checkpoints and helpful guidance. And leave some avenues open in case you need to course correct.

Use these questions to look past your present demands and adopt a forward-thinking mindset, and access the kind of knowledge and expertise that can help you make sure you’re going in the right direction.

Maureen Ryan, vice president, heads up business development at RoseRyan. From the early startup to the large enterprise, she has seen the emotional rollercoaster of finance challenges at cannabis businesses, tech companies and other fast-paced organizations. Maureen spent her early career in various engineering, sales and marketing roles at Nortel Networks, Bay Networks, Quantum Corp. and General Dynamics.

Chris Vane is a director at RoseRyan, where he leads the development of the finance and accounting consulting firm’s cleantech and high tech practices. He helps fast-moving companies calm the chaos at any stage. He can be reached at cvane@roseryan.com, or call him at 510.456.3056 x169.

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How to amp up your year-end disclosures for the revenue accounting changes ahead

It’s always healthy to take a fresh look at your disclosures and discussions in your annual reports. Situations change, boilerplate language doesn’t always cut it, and changes in accounting policies make it a necessity. This year, more than ever, several drivers make such a review a can’t-miss effort.

A number of new accounting standards are coming down the pike that will significantly change the information you provide. And investors and analysts want to understand now how these accounting changes will impact your financial statements and how you’ll report what is happening in your business.

So, we’re highlighting a few areas to focus on this reporting season, and we’re giving you a head-start on what you may want your related disclosures to say.

The new revenue standard

Arguably, this is the biggest change in accounting we will see in our lifetime—a generational change. Anticipating the shifts companies will be making in how they recognize revenue in the years ahead, the Securities and Exchange Commission has high expectations for your next round of disclosures. They’ll be looking out for the effects the new standard will have on your accounting through what’s commonly known as SAB 74 disclosures.

The SEC said from the start that they expect these disclosures to evolve as implementations progress. The SEC Corp Fin staff is now saying that they are done waiting, and it is no longer acceptable to limit your disclosures to boilerplate “we are still evaluating” language in your calendar Q1 2017 filings (10-Ks, 10-Qs). They upped their scrutiny in this area with Q3 filings and expect to see more robust disclosures for year-end.

Companies that don’t meet these expectations will likely receive a comment letter asking for more information. The SEC enforcement staff has even gone so far to say that they will pursue enforcement actions if SAB 74 disclosures are not robust enough.

So, what should you be saying?

In your footnote disclosures, you should assess the expected impact of the new revenue standard or, at a minimum, provide directional guidance in the areas that are relevant to your business. See below for some examples:

  • The timing of revenue recognition.

    “The Company expects revenue recognized on a cash basis today to be recognized earlier under the new standard.”

  • How revenue allocations among multiple deliverables will change.

    “The Company expects the revenue allocation between software licenses, maintenance, and other services to change, since the estimated consideration will be allocated between each performance obligation based on relative selling prices rather than using a residual method for software licenses under the current guidance.”

  • The impact of variable consideration estimates, such as contingent payments, customer discounts, and price protection rebates.

    “The Company expects to include sales-based milestone payments that are probable of payment in our estimates of variable consideration, resulting in more revenue recognized as associated performance obligations are delivered rather than waiting for the milestone payment to be paid.”

  • The impact of shifting from a sell-through to sell-in revenue recognition model when estimating returns.
  • Changes in the timing of revenue recognition from separating financing components from contract consideration.

    “The Company expects contracts with extended payment terms to be recognized earlier after separating a financing component from the consideration.”

  • The capitalization of costs that are incremental to each contract and recognition concurrent with the associated revenue.
  • Quantification of the overall impact of the standard.

Have you done your diligence with the new standard and believe it won’t make much of a difference? If you expect the impact of adoption to be immaterial to your financial statements, you still need to address it and explain your reasoning. Here’s an example of language you could use:

  • “The Company expects the impact of adoption to be insignificant to its financial statements, since its contracts are simple with only one performance obligation delivered at a point in time for a fixed price. The only new accounting element will be the capitalization of costs incremental to each contract and recognition concurrent with revenue, which is accrued when the order is placed and recognized when the goods are delivered.”

You should also include facts about your implementation of the new standard:

  • When you expect to adopt and your planned transition method.

    “The Company intends to adopt the new revenue standard as of January 1, 2018, with a modified retrospective transition approach.”

  • The status of your implementation.

    “The Company has completed our evaluation of the changes in accounting for representative transactions under the new guidance.”

  • Significant areas you still need to address and when you expect to address them. 

    “The next areas to address in the implementation are: (i) establishing relative selling prices for each performance obligation, (ii) assessing the accounting impact to the financial statements, (iii) developing tools to monitor the additional information needed, (iv) preparing the accounting entries for adoption, and (v) writing supplemental footnote disclosures. The Company expects to complete these efforts by the fourth quarter of 2017.”

In your MD&A discussions about the new revenue standard, you should emphasize the future impact of the new accounting treatment:

  • Material changes and trends: Under the new standard, for instance, do you expect more variability because revenue will be recognized earlier, or will you have to make significant estimates?
  • Financial and non-financial impacts: For example, changes in the balance sheet for contract assets and liabilities may affect key financial ratios that are embedded in debt covenant requirements.
  • Significant estimates and judgments: Consider estimates related to variable consideration and the constraint on variable consideration, including returns, price protection rebates, and cash discounts or the probability of milestone payments. Another example is the estimation of standalone selling prices and the allocation of discounts and variable consideration in allocating the transaction price.

Other areas to refresh

While the new revenue standard may be the most significant change that you need to address in your financials this year, a few other areas also warrant your attention.

Management’s assessment of going concern

You are now required to perform your own assessment as to whether there is substantial doubt about your company’s ability to continue as a going concern within one year after the date you’ll be issuing your financial statements (so if you file your 10-K in March 2017, you would need to assess your ability to continue as a going concern through March 2018).

If conditions or events raise substantial doubt about your ability to meet your obligations, you need to consider management’s plans to mitigate those doubts if (1) it is probable you can implement those plans and (2) those plans will mitigate the doubt.

Substantial doubt about the company’s ability to continue as a going concern will require expanded footnote disclosures that cover the period through 12 months from the date of financial statement issuance (instead of prior disclosures that focused on 12 months from the balance sheet date).

SAB 74 disclosures for other new standards

Don’t forget, you also have SAB 74 disclosure requirements for other new accounting standards, including:

  • Leases, which is scheduled for adoption in 2019 for public companies and 2020 for private companies. Example language beyond standard boilerplate might include:

    “The Company’s leases are limited to operating leases for the Company’s corporate headquarters and regional sales offices. Management is currently evaluating the impact of adoption. While management cannot yet estimate the amounts by which its financial statements will be affected, the Company has identified the following changes. The Company expects the recognition of expense to be similar to current guidance under the new standard. And there will be a significant change in the balance sheet due to the recognition of Right of Use Assets and corresponding Lease Liability. The Company plans to adopt the new Leases standard effective January 1, 2019, following a modified retrospective transition method.” 

    An item to consider highlighting in your MD&A discussions would be any expected impact on debt covenant financial ratios caused by leases coming onto the balance sheet.

During this refresh process, keep at the top of your mind the changes that have caught your attention or caused you concern. Provide enough information to investors and analysts to help them understand the significant impacts of new standards on your business.

No one likes to be at the bleeding edge by expanding disclosures before they have to, but don’t be left behind. Expect that across the board, companies will be sharing expanded disclosures about new accounting standards this 10-K filing season—particularly related to the new revenue standard.

You will be the odd man out if you don’t make your own disclosures more robust.

The exact language you use for your disclosures depends on your facts and circumstances, of course. Feel free to contact us if you have any questions about the accounting changes ahead and how to deal with them.

Diana Gilbert, who heads our Technical Accounting Group, has been a member of the RoseRyan dream team since 2008 and has 30 years of professional experience. Frequently tapped for her insights by Compliance Week, Diana excels at technical accounting, revenue recognition, SOX/internal controls, business systems and process improvements.

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Falling off the rails? 6 tips for a smooth transition to your new accounting system

The next time your company undergoes an accounting system switch, will it make your team soar or fumble?

Of course, we dream of success and no one predicts failure when taking on a big project like this, but there is something to be said for expecting the unexpected when technology is involved. We’ve all heard stories and seen firsthand tech migrations and implementations that were painful to experience. We’ve seen the bad ones that left finance teams in the dark, went way over budget and scrambled up timelines.

We’re here to help you avoid such scenarios. We’re often called in as an implementation starts to go astray, to get it back on track. So we have lots of lessons learned in our back pockets. In those cases, companies realize after the fact that proper preparation could have mitigated the mishaps.


At RoseRyan, we’ve worked alongside companies that started out with haphazard implementation strategies before they brought us in as well as companies that put seasoned finance aces at the helm from the get-go.

We’ve helped entrepreneurs outgrow the habit of keeping receipts in a shoebox, and we’ve assisted small finance teams as they adjust to QuickBooks rather than relying on a jumbled mess of Excel spreadsheets. And we’ve brought companies up the tech ladder to solutions like NetSuite, Great Plains, Microsoft Dynamics, and we’ve spoken up for the finance side when a transition to a larger ERP system is in the works.

We’ve stepped in at various stages of these switchovers, sometimes right at the beginning to help guide the way and sometimes in the middle, to pick up the pieces of a project that has gone awry or to offer heavy-lifting during a messy transition.

We’ve seen what can go wildly wrong and what can go just right. Here are the key takeaways for ensuring your next upgrade is smooth sailing:

1. Be realistic about the system you need.

Does your startup look in the mirror and see a muscled-up enterprise? Some dreamy, smaller businesses get caught up and buy solutions that have lots more capabilities than they can handle any time soon. We’ve seen some that pulled the purchase trigger based on unproven sales forecasts. You want room to grow, but you also don’t want to take on a pricey, honking system that you lack the resources to maintain.

Your trusted advisors who know how companies like yours run can skillfully help you make the right call.

2. Conduct some reverse engineering.

If the finance team is increasingly using manual methods to get the reports they need, then change is certainly in order. Would a new system get you closer to real-time information? Could it vastly improve productivity? Can you currently drill down to understand how a particular product is making money (or isn’t)? When the company starts losing visibility, it’s time to look for something more robust and powerful.

A big but: Many times, companies have vague goals and end up with a system that does the exact opposite of what they had hoped for—and users spend more time fiddling around with it than doing actual work, and they struggle to gather the information they need. Before plunging ahead with any new system, give careful thought to what you want out of it and work your way backward.

Who will be wanting the information that comes out of it? The CEO? CFO? Department managers? Compliance and auditors? Build your system with the outputs and users in mind from day one, and you’ll come as close as you can to a seamless implementation.

3. Have finance lead the charge as much as possible.

A common issue is IT’s steadfast claim on any new technology project that comes into the company. We’ve come on board post-implementations long after IT claimed ownership of a project and neglected to get input from the people who will be using the system day in and day out. The result was absolute frustration. At one company, an inventory manager was overwhelmed by a new system that could not help her manage 4,000 SKUs. If she had been asked to give input earlier, she could have preserved some valuable time and avoided agony.

IT surely needs to be involved, but depending on the makeup of the finance team, the controller will need access and editing capabilities from the beginning and a say throughout the process. Finance should operate as a partner with the IT department, not against it and not as a subordinate.

4. Ask the right questions.

Turn to colleagues and trusted advisors who have gone through recent implementations for the questions you should ask your vendor. They can help you express your pain points and determine how you can make things easier for yourself—and your team. So much of a successful tech implementation relies on good communication—everyone involves needs to understand each other, and trusted advisors can help facilitate the conversations to make that happen.

5. Keep your eyes on the clock.

Timing is everything. Many teams aim to make their switchover at fiscal year end—it’s the least expensive and least distressing way to go. However, timelines do often get stretched if whoever is managing the project is inexperienced and not held accountable as the months go by. We have helped companies pick up the pieces of implementations that got off track—including situations where the company lost out on free support from their vendor because so much time had passed. Build in accountability at the start.

6. Raise your hand for help.

If accounting-system switches were an everyday occurrence, finance teams would never get anything done. Thankfully, they’re few and far between. Experts who are more accustomed to transitions than your team and who stay up-to-date on the latest software and know the ins and outs of popular systems can help you make the right decisions and train key players.

They’ll test out the system, shooing away any bugs, and stand in the shoes of finance users. They know the full capabilities of the system and ways it can be customized (for instance, NetSuite can be easily tweaked for customizations, more than many users realize).

Come up with a solid plan, and make room for the unplanned. Hold the project leaders accountable for meeting deadlines (you’d be shocked how often we’ve seen this not happen). The fact is, having to go in and massively fix something later is much more expensive—in terms of costs and time—than getting it done right the first time.

Figure out the right path to take and the smart people to take along with you as early as possible, and you’ll get to your destination efficiently.

Suzy Buckhalter is an accounting problem-solver when it comes to helping fast-growing companies gain efficiencies and grapple their full financial picture. Hear how she helps companies rein in their out-of-control chart of accounts in this webinar.

Ron Siporen, a consultant on the RoseRyan dream team, has over 30 years of experience working with startups, and he has been a successful business owner himself. He loves to help companies clean up problems and scale up for growth. Read his blog post on the rookie mistake that can doom a startup.

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Rethinking revenue and realizing opportunities in the new rules

It’s game time. Deals your company is making now could be affected by the new revenue recognition standard, and the effective date will be here before you know it.

This is why it is so important for finance organizations to actively process the rules, consider the potential impacts and plan ahead. There are opportunities to be realized as well as risks to be minimized—all of which can be done only if the company takes a strategic approach well before the deadline.

The changeover to the new rules is way more than an accounting exercise—reveal RoseRyan finance pros Diana Gilbert and Pat Voll in a new report, A strategic playbook for taking on the new revenue recognition rules. Their guide lays the foundation for how companies can make a smooth, thoughtful transition to the new rev rec standard.

Educate the team: Immerse the key players in the rules and gain an understanding of the big differences. There’s no shortage of analysis and interpretations of what all the changes mean. Look for webinars from sources you trust and get your auditor’s perspectives on the new standard, and share what you find with the key players in your organization.

Spread the love and make it a cross-functional thing: Get other stakeholders in the company involved, early and often. We’re talking about the big R—revenue!—and the changes could potentially impact many functional areas of the company. You want to gain perspectives from key stakeholders and share information—the impacts of the new rules can be huge. There are opportunities to change how you do business, and you want to be sure they’re part of your consideration.

Take the new rev rec rules for a spin: Identify sample arrangements that are representative of how you do business and analyze them under the new standard. You’ll want to understand the impact to individual types of contracts as well as the overall impact to the financial statements. This will help you understand what new estimates you will need make and identify data sources and or systems that you may need to develop.

Do the FASB 5-step: Take your representatives arrangements through the new standard’s five-step process. All the data you gather can be used to develop a model to estimate the impact of the new rules.

Evaluate your options and choose your game plan: Step back and reflect, once the potential impacts become clearer. Changes to contracts and incentive plans may need to happen. So could changes to how you package certain products or even how you fundamentally sell them. This is a big deal.

Normally, implementing new accounting rules impacts only the accounting department. This one is different—the changes to rev rec could change how the company does business. With what little time you have left before the standard takes effect, you need to take advantage of the potential opportunities and thoroughly evaluate your options. (The new standard will be applied to filings starting after Dec. 15, 2017 for public companies—that’s just six quarters away!)

Many companies have a major undertaking ahead of them as they evaluate and adopt the rules. The full extent of the effort should not be underestimated, or you’ll get caught in a painful crunch. The timeline will continue to shrink and so will resources as companies go through their analysis.

With pragmatic guidance and specialized expertise at the ready, savvy companies can avoid mishaps and tap into certain opportunities they might not have thought about before.

Kick off your transition to the new way of accounting for revenue by downloading A strategic playbook for taking on the new revenue recognition. The guide goes through the why, who, what and how of adopting the standard and includes helpful examples of how the rules could affect pricing and contracts at tech and life sciences companies.

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Conquer complexity: Get briefed on the latest accounting updates

In the accounting world, the rules are ever changing. Large in scope and long awaited, the new rule for recognizing revenue continues to get clarifications in the months leading up to its effective date. The new leasing standard is finally here as well and sharing the attention. Those are just the biggies—the Financial Accounting Standards Board has been coming out with a flurry of changes in recent months, and regulators are paying attention to what you are doing with them. There’s a ton of information to follow to stay compliant.

How equipped finance teams are to keep up with all the moving parts varies quite a bit. They oftentimes find it beneficial to lean on technical accounting experts who can decipher the never-ending landscape and help with interpretations. Such experts can help them stay on track in understanding the latest accounting refinements, transition-method choices and effective dates. Diana Gilbert, senior consultant at RoseRyan and head of our Technical Accounting Group, helped many companies get up to speed during the June 2 webinar, “Demystifying the Latest Major Accounting Changes.”

This fast moving, 90-minute, all-out binge covered the latest twists and turns that have come out from FASB and regulators over the past year. Some changes have simplified things. Others will have a narrow effect. And many will force finance teams to do some soul searching as the deadlines near. Contracts and compensation plans may need to be revisited.

Diana filled in listeners (most of whom were from life sciences and technology companies) on the five topics below, along with other changes, and gave timely advice along the way.

Revenue recognition: Companies that don’t have a game plan for the new revenue recognition standard are running out of excuses. The SEC has been “aggressively” referencing the new rule in recent speeches to let companies know they will be watching what gets said in disclosures, Diana said. Boilerplate, vague language won’t cut it much longer.

“This has been out there since 2014, so they are going to question why you’re still evaluating it now,” she said. “If you’re honestly, sincerely evaluating it, then just be prepared for the questions. But if you’ve done your evaluation and pretty much do understand the impact, then think about including more detailed disclosures, particularly about decisions you’ve already made,” such as the transition method the company will be taking and the planned adoption date.

Leases: The new standard finalized in February will bring what we refer to as operating leases today onto the balance sheet. The rule applies to leases of property and equipment with terms of at least one year and centers around the lessee’s “right of use” of an item (the obligation to pay for that right is what will appear on the liability side of the balance sheet).

The new rule could change behavior, Diana predicted. “Think about it. If you’re going to have it on the balance sheet anyway, are you still going to lease it or would you buy it outright?” she said. “You might create new forms of leases that are clearly less than a year, without the option to renew, and you’ll have to deal with the issue every year. That may make sense for inconsequential arrangements. It will be interesting to see what happens going forward.”

Financial instruments: Public companies will begin following new rules on classifying and measuring financial instruments for filings submitted in 2018, and private companies will do so a year later. Equity investments that are not consolidated are generally going to be measured at fair value through earnings. In some ways, disclosure requirements have been simplified with the rule changes—companies won’t have to disclose their methods and significant assumptions for estimating fair value—and in other ways they have expanded.

Stock-based compensation: Companies have “a grocery bag of different changes” to deal with when it comes to improvements to employee share-based payment accounting, Diana warned. The most significant relates to deferred tax assets. When the changes take effect, companies will no longer record excess tax benefits and certain tax deficiencies resulting from share-based awards in additional paid-in capital (APIC). APIC pools are eliminated under the changes.

Diana said this is a “huge simplification” in terms of tracking share-based compensation, but the downside is the potential for more volatility in the income statement. This particular change is applied prospectively from the date of adoption (which begins after December 15, 2016, for public companies).

SEC comments: The SEC staff has always tended to question areas that involve judgment and subjectivity, Diana noted. In recent years, in particular, they have been scrutinizing the statement of cash flows and whether companies’ internal controls are effective. Diana recommended that companies be as clear as possible and use tables and charts to help tell their story.

“Comment letters come about because they don’t understand what’s happening,” Diana said. “Or it’s a complex area and they’re going to ask you questions whether you like it or not.”

Keeping tabs on regulators’ areas of emphasis and accounting standard-setters’ changes takes time and effort. Things are in constant motion, and companies need to stay on top of it all. That’s how they can help minimize the questions that come from regulators and any uncertainty that may arise during implementation. To save time and effort in understanding the latest accounting standards (changes through June 1, 2016), feel free to check out the 90-minute replay of “Demystifying the Latest Major Accounting Changes” here.

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Superstar controllers need technical chops and so much more

Job interviews with controllers—whether you’re in the hot seat or the one asking the questions—are getting broader these days, as the role of the controller and expectations around it have escalated. Just as today’s CFOs are expected to be more strategic than the bean-counting finance chiefs of yesteryear, so too are controllers getting called upon for their operational skills and are expected to have broader, forward-looking views. Today’s controllers are not all about past figures. They contribute to strategy to guide it into the future.

We see this transformation firsthand whenever we’re embedded in teams at companies around the San Francisco Bay Area, and we’ve frequently taken on controller roles on an interim basis. RoseRyan consultant Cheri Koehler—a superstar controller in her own right—has gathered up some practical tips and advice for controllers at companies of all sizes:

RoseRyan_Report_SuperstarControllerLook beyond the numbers: Controllers who have mastered their role have a firm grasp of their company’s latest facts and figures, and they also need to be able to tell the story to everyone else. They are one of the few who can provide context behind the numbers and use their knowledge to ensure the company stays healthy. That knowledge can power smart decision-making throughout the business.

Be a bridge builder: Controllers have typically been buddies with HR and customer service folks as many of their transactions and activities overlap. Extend similar connections around the company, making links between finance and IT, procurement, distribution, manufacturing and others. In this way, controllers can set up collaborative partnerships and give themselves a voice when choices are about to made. As proactive business partners, they keep finance in the loop and provide valuable support, advice and analysis whenever it’s needed.

Find and keep talent: This requires a continuous effort—even when the finance team seems well stocked. Things can change and specialized skills may be needed for a complex transaction or someone could have to leave without much notice. Superstar controllers regularly tend to the talent pool by always keeping their connections open and paying attention to develop and retain the people they have on hand. They look for opportunities to empower the team and keep them enthused.

Stellar controllers know how to bring the information they gather to life. They’re excellent communicators by making sure they can influence and persuade, they help with strategic decisions and activities throughout the company, and evangelize potential improvements and efficiencies. What makes this possible? They are up to date on the latest technologies and can keep their eyes and ears to the ground to learn best practices in their field. Ensuring they have a talented team in place makes all the difference.

Are you a controller striving for greatness? Or a CFO who needs to strengthen the finance bench? To understand the controller role today and what skills are needed for superstar status, check out 5 ways to become a superstar controller.

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The CFO juggling act of managing resources

A crazy sprint in the middle of a marathon would leave anyone gasping for oxygen. It’s not sustainable. Go too fast and there’s a risk of real burnout. Then again, go too slowly and there’s the risk of a competitor catching up and taking away your lead.

Sound familiar? Companies are always in the turbulence of growth, whether they’re chasing after it or striving to complete a mega transaction, like an IPO. And CFOs are at the helm of it all. On top of all the roles that they already take on at their company, finance chiefs are also guiding the velocity. Are they deploying the right amount of resources, or are they expending them much too quickly? Thoughtful growth is the secret.

RoseRyan director Stephen Ambler, who has served as CFO in several companies, shares his wisdom about the essential areas in finance that need the close attention of senior finance executives. These include:

Cash flow: Finance organizations can’t afford to look away for a minute. Literally. In RoseRyan’s latest intelligence report, A CFO guide for managing resources, Stephen relays the tough squeeze one company fell into when it lost a grip on its cash position. Sounds unbelievable, but it does happen, and it can sink the ship.

Growth strategy: The pace of growth is not always something the company can control, but a realistic forecast and deliberate path should be developed—wild guesses have no place here.

Talent: It’s about timing and understanding that you get what you pay for—even with people. That includes knowing when hiring junior-level employees does or does not make sense. Having the wrong mix of people may actually cost the company more over time. And today’s world is all about outsourcing. Know when to bring in the ninja team to get things done in a tough, overflow situation.

Upgrading systems: Get a sense of when the company has outgrown processes and systems (QuickBooks can be awesome as a small-business accounting program but an upgrade will be needed when the company has the public markets in its sights). Are the systems in place scalable and appropriate for the company’s size and complexity? If not, it might be time for an upgrade.

Managing resources well is an ongoing effort. No matter what size company or how fast you are growing, the same essential best practices will help you to stay in control of your financial situation. Be the steady hand at the helm. Along the way, don’t hesitate to lean on trusted advisors who can help you over the finish line.

Is your company galloping ahead without a well-centered plan? Or are you too conservative in your spending approach? To understand growth path considerations, check out A CFO guide for managing resources.

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On the road to IPO? 6 obstacles to avoid at all costs

All eyes are on you when your company goes IPO. Everyone, it seems, wants to know the company’s every move—its past results, its risks, its future projections. Working at a newly public company can make employees feel like they’re in a giant fish bowl with everyone swimming around and crashing into each other. Unless, that is, the company planned ahead for a bit of mayhem.

A new intelligence report written by RoseRyan CEO Kathy Ryan warns top executives of pre-IPO companies about six potential pitfalls that await them on the multi-year journey they’re about to undertake. These are obstacles along the IPO path that can easily sink a deal.

By being more aware of the potential problem areas, companies have a better chance at a better ride (it’ll be bumpy no matter what—as anyone who has suffered through the aftershocks of an IPO can tell you). They’re also likelier to achieve a tighter corporate culture on the other side, a reduced risk of public mistakes (like a messy restatement), and a realistic, satisfactory share price.

Kathy emphasizes in the new report, The IPO journey: 6 potential obstacles to avoid for a smooth trip, that going public is much different that actually being a public company. To do it right, companies should view the entire deal as having three phases—the IPO prep, the IPO process itself, and the IPO hangover of suddenly being public. Along the way they should stay away from the following missteps:

Avoiding the tough questions: Kathy reveals the hard questions that need to be asked, including whether the company is moving forward with the transaction for the right reasons.

Skipping the prep work: There are years of laying foundations before the journey gets into the S-1 frenzy, from getting the financial house in order to figuring out the key metrics that will be shared and how they will be expressed publicly.

Being unprepared for a big culture shock: Senior executives rarely consider the transformation employees are expected to go through as the company changes from an entrepreneurial mindset to the more disciplined, accountable organization of a publicly traded company beholden to new regulations. The culture can—and should be—managed during the IPO process.

Lacking the right talent at the right time: Just as the culture should be evaluated, so should the skills. To what extent can existing employees be trained to withstand the needs of a public company, and to what extent does the company need to look outside to fill in the skills gap? It’s better to wonder this as the company goes along—rather than risk overloading employees more than they need to be.

Being in denial about the IPO hangover: There is a hard truth about going IPO and it’s what happens on “Day 2,” the day after the IPO, when the company starts operating in a whole new world, and the next few years that follow. It is a tsunami of work. It takes awhile for everyone to adjust, for efficiencies to take hold and new processes to become routine.

Not actively managing the share price: Many executives think they cannot influence how investors perceive and thus value their company. But it is possible, with effective messaging by company leaders, who need to put themselves in investors’ shoes and hone their storytelling skills to speak their language.

Preempt the mishaps. Prepare the troops. And get ready for the exciting trip that lies ahead. Download The IPO journey: 6 potential obstacles to avoid for a smooth trip.