The $100M Revenue Mistake Everyone Missed
A $100 million fintech acquisition nearly closed before revenue expert Devin Coombs discovered the company had no contractual right to the revenue they were recognizing. The episode explores how revenue recognition under ASC 606 is dangerously complex, often misunderstood by auditors and finance teams, and how consumption-based pricing is creating new challenges for accurate financial reporting.
Summary
Host Sarah Schlott interviews Devin Coombs, a CPA and revenue recognition expert, about a critical near-miss in a $100 million acquisition. The target company had received a clean audit opinion, yet Coombs discovered over a weekend that the company had no contractual right to collect most of the revenue they were booking. The issue stemmed from three-party fintech relationships where the company was invoicing based on third-party work they facilitated but didn't control, and they were recognizing revenue before customer acceptance of services—violating their contractual obligations. This demonstrates a systemic problem: ASC 606 guidance is so technically complex (spanning 500+ pages of FASB documents and multiple Big Four interpretations) that very few people can simultaneously understand the contracts, accounting guidance, and business reality. Coombs estimates only about 10 people exist who can hold all three perspectives together. The transcript explores why this expertise gap exists: accountants are paid 10% less than FP&A counterparts, making the profession less attractive; technical revenue experts command $600,000-$700,000 annually, pricing them out of reach for most companies; and the skill requires rare hybrid background spanning Big Four experience, deal exposure, technical accounting, legal knowledge, and sales/business operations understanding. The conversation also addresses consumption-based pricing models, which are becoming standard as companies respond to SaaS multiple compression and AI cost structures. However, consumption pricing creates new revenue recognition complexity, potentially leading to errors because companies that struggled with subscription models over the past decade now face even more judgment-based decisions about minimum commitments, overages, breakage, and allocation. The episode concludes with practical recommendations: standardize offerings early, clarify the commercial objective before building the contract, engage a revenue expert for even 10-20 hours early in the business lifecycle, and develop playbooks for sales teams to follow guardrails that preserve the accounting conclusion.
About this episode
For FP&A, the most dangerous revenue number may be the one that looks credible enough not to question. A $100 million acquisition was just three weeks from closing. The target had been audited, the opinion had come back clean, and the deal looked compelling. Then Devon Coombs, CPA, spent a weekend digging through the contracts and came back with a very different conclusion: the revenue story did not match the contractual rights and cash flows underneath it. In this episode of FP&A Today, Devon explains why FP&A cannot automatically treat invoicing as revenue, how principal-versus-agent decisions can make the same transaction appear as either $100 or $3 of reported revenue, and why worsening cash flow can reveal problems that a strong top line hides. The conversation also looks ahead to AI and consumption-based pricing, where minimum commitments, usage, overages, invoicing cadence, and contract structure can make forecasting and revenue recognition substantially more complex. The bigger lesson for FP&A is simple: understanding revenue means understanding the contracts and economics behind the number, not just the number itself. Key Moments Revenue and cash flow need to tell a coherent story. Rising revenue and income should trigger questions when operating cash outflows continue to deteriorate. An invoice is not automatically revenue. Recognition depends on contractual rights, performance obligations, and when those obligations are actually satisfied. Gross versus net revenue can dramatically change the top line. The same $100 transaction could result in $100 or $3 of reported revenue depending on the company's role in the transaction. Good diligence starts before management explains the numbers. Devon describes looking at the financials first, forming an independent view, and then going directly to the underlying contracts. Contracts are an FP&A input, not only an accounting or legal document. Pricing, billing, and commercial terms can materially affect forecasts and the economics FP&A is trying to model. Standardization reduces revenue risk. Clearer offerings, pricing structures, contracts, and RevRec processes make it easier to scale without discovering problems during a transaction. AI and consumption pricing are changing the forecasting problem. Minimum commitments, overages, usage, breakage, and billing cadence can produce very different revenue patterns. Finance teams need a revenue architecture strategy. FP&A should understand how pricing, contracts, billing, revenue recognition, and forecasting fit together as one system. Timestamps 05:29 — Should the same transaction produce $100 of revenue or $3?08:15 — Why invoicing does not necessarily equal revenue12:30 — The $100M acquisition everyone wanted to move forward with17:58 — Devon's diligence method: start with the numbers, then read the contracts18:42 — How the buyer avoided a $100M mistake40:40 — Why SaaS, AI, and consumption-based pricing are changing the revenue model48:45 — Practical steps for aligning offerings, contracts, and RevRec56:05 — The revenue architecture question every FP&A team should be askingEarn CPE Credits If you would like to earn CPE credit for listening to the show, visit earmarkcpe.com/fpna. Download the app, take a short quiz, and get your CPE certificate. Further Reading/Listening Devon Coombs — Website & Resources:https://www.devoncoombs.com/ Connect with Devon on LinkedIn:https://www.linkedin.com/in/devoncoombs/ The 10 Laws of Finance:https://www.devoncoombs.com/book
Key Insights
- Devin Coombs discovered a $100 million acquisition deal should not proceed because the target company had no contractual right to the revenue it was recognizing, despite passing a clean audit opinion and multiple layers of financial review.
- The fintech company was invoicing customers immediately upon request but only had contractual rights to invoice upon customer acceptance of completed services, creating a massive collectability gap that wasn't reflected in the financial statements.
- ASC 606 guidance is so technically complex (500+ pages plus multiple Big Four interpretations) that Coombs estimates only approximately 10 people exist who can simultaneously understand technical accounting guidance, contract language, and underlying business economics.
- Accountants are systematically paid about 10% less than their FP&A counterparts within the same organizations, creating perverse incentives that discourage talented people from pursuing accounting careers and technical revenue expertise.
- The company's early warning sign was that revenue and income were growing while operating cash outflows were worsening at an increasing rate, a pattern that should trigger investigation into the quality of revenue recognition.
- Many smaller acquisition targets receive clean audit opinions from mid-tier or small audit firms that lack specialized technical expertise in complex revenue recognition, relying heavily on management representation rather than independent verification.
- Consumption-based pricing is becoming standard as companies respond to SaaS multiple compression and AI infrastructure costs, but this creates new revenue recognition complexity with judgment-based conclusions about minimum commitments, overages, and allocation.
- Revenue experts who understand the intersection of contracts, accounting guidance, business strategy, and sales operations can command $600,000-$700,000 in annual compensation, making full-time hires infeasible for companies below a certain revenue threshold.
Topics
Transcript
This is really exciting. We really want to move forward with this. Make the purchase. It sounds really compelling. We have a limited time window to make the offer. Can you look really quick at what's going on here and can you agree? You see revenue go up, you see income up, but cash outflows continue to get worse. First, let's just look at the numbers. Hey, what's the story the number's telling me? In this instance, I come back, you know, over a weekend and say, hey guys, you're totally missing the story here. There's something really wrong. If you would like to earn CPE credit for listening to the show, visit earmarkcpe.com slash FP&A. Download the app, take…
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