Thoughts

 

By Damian Griffiths, Jan 16 2015 04:19PM

(or why the accounting rules for small companies are wrong)


Before the howls of protest ring out, I want to make it clear that I haven’t gone completely mad and I’m certainly not the first to have spotted that the rules that we’ve all grown up with are increasingly out of touch with 21st century business and in particular the hotchpotch of latte-inspired, bicycle-powered digital start-ups springing up in parts of London and other city centres.


Let’s start with ‘profit’ – a key measure of business success. It underpins the very real economic value of big business (think multiples and earnings ratios) and for that reason big business seeks to maximise profit in total, product by product and department by department.


Because the risks of over-valuation are feared more than under-valuation, the accountants have done their level best to make sure that as many costs are applied against profit as possible. So routine innovation designed to make products cheaper to produce or a little bit better, is treated as a normal cost of the business. It is written-off and forgotten. And for a long time, big business has cooperated fully with this treatment, eager at least to get a 100% tax credit in the year the innovation work is done.


Now look at how the same treatment is distorting the face of Tech City. By and large there are thousands of hugely talented creative geeks working away in small teams in London and elsewhere who are carving out just enough of a living to spend days and days inventing and trying out things that one day might be ground-breaking innovations. This whole sector of business, employment-rich is undoubtedly profit-poor (at the moment). By every current measure of productivity – the whole sector is a productivity nightmare.


But now turn it around. What if all that time currently being expensed against profit were excluded, deferred or capitalised? Of course the tax rules would need to change so that these young businesses weren’t suddenly clobbered with much higher tax bills – but in essence the whole sector would suddenly become much more profitable and valuable.


And so why does this matter? Well recently the Mayor of London was complaining about the paucity of small start-ups in London making the leap from start-up to large scale business. The suggestion is that they get eaten up rather quickly by the mega-corporations. The accounting treatment matters because at present, the rules ensure that profits (and therefore valuations) stay low and the true value of potentially ground-breaking innovation is written-off time and again.


Wouldn’t it be better if the huge success story of the Silicon Roundabout and its neighbours were given the chance to step up to the next level? And at the same time it would make the lousy productivity figures look a bit better too.



By Damian Griffiths, Dec 29 2014 12:16PM

Soon we’ll be reading and watching highlights of 2014, confidence-boosting forecasts for 2015 and worthy resolutions for 2015. So before that, there’s just time to make a list of 10 things not to do in 2015

1) Stop taking stock of the year just gone


Reflecting on a 12 month period is arbitrary. If you’re at the start of an exciting new venture, 12 months is much too long. If you’re in the midst of a long term venture, 12 months is much too short. Looking back a year at a time is a tyranny in itself. Save yourself the bother.


2) Stop networking

Networking events, meeting people and engaging in online chats are all excellent ways to fill up time – especially during the run up to Christmas and between Christmas and the New Year. But they are not actual work and don’t take the place of hard thinking, diligent work and delivering what matters. Use the time to work effectively or have a holiday.


3) Stop trying to manage things you can’t affect

Some bad things happen. Big companies pay more slowly than they used to. Payment systems are more complex and time consuming. Save your breath – stop complaining and get used to how things are now.


4) Don’t set goals at the beginning of the year (in the northern hemisphere!)

The New Year starts with everyone feeling a bit down. Not enough money, holidays a long way away, rampant ‘flu and so on. The New Year is an odd time – better set goals at almost any other time of the year.


5) Stop asking new questions

Just stick to the questions that are yet to be answered.

• How much time is used productively?

• What activity provides the best return on investment?

• Which products or services are the most important and/or profitable?

6) Stop focussing on the same old metric

If you’ve always focussed on growth, try cash flow. If you’ve always focussed on profit, try wealth. If you just keep looking at things the same way the same old way it’s much more difficult to see how to make a difference.


7) Stop looking for the magic bullet

It's all too easy to believe that someone, somewhere has the answer for you and the business. Chances are, you already know the top 3 things that need doing and now it’s all about getting those things done. Execution, execution, execution.


8) Stop listening to customers all the time

Or at least only listen to customers who are exceptionally honest, truthful and intelligent. All the others will lead you down the garden path and before you know it you’ll be overtaken by someone or something that customers hadn’t even thought about.


9) Don’t waste your energy

Starts with generating hot air in meetings and finishes with saving the planet


10) Stop dithering

Now and again – decisions are so complex and difficult that it’s worth taking the time. But most decisions can and should be made quickly and decisively


So there you have it. 10 things not to do at any time of the year and especially at the start of 2015.