So are we (Ireland) getting it right……
A small delve into economics, sorry. I read this article on the Wall Street Journal about my homeland (well, my dear home too!) and it make me think, well, we not total gobshites! Of course, we’re not, no matter what Fr. Jack (left says!). But in all seriousness, I can’t help but compare what the articles says to my own experience of talking to and helping small Irish businesses. I don’t know anyone who is not worried about the future of their business, but yet they all pulled-up their socks and did what any management accountant would advise – look at your costs, your processes, what you do and so on. I know two businesses who realised they needed to work 3-days weeks for almost a year, but they are now fine again. Others dropped price, or just worked smarter. I also can think of others who just would not adjust their cost structure, prices, staff or anything. Where do you think these guys are? Well nowhere simply. Of those businesses that adapted to survive, they have learned a hard lesson on cost structures, doing things well, adjusting price and looking after customers. Those, like the WSJ article say about Ireland, will be the stronger firms in the future ( I hope ).
What organisations need to prepare acccounts?
One of the first few things that I would typically teach students that are new to accounting is that all most organisations need to control what they do in some way. Control can be of a financial nature, i.e. preparing financial statements, and this is something we typically associate with “for-profit” organisations.
However, many not-for-profit organisations also need to keep accounting records and have intricate financial/accounting based control systems. For example, a charity might like to know its sources of funding and keep a detailed trace on all expenditures. Similarly, any sovereign state needs to keep track of its income (usually taxes) and its outgoings e.g. expenditure on schools, roads and social welfare. A few months ago, a number of articles on the annual financial report of the Vatican State caught my eye (see here and here). In brief, the Vatican State had a surplus of about €10 million for 2010. The Vatican is a peculiar organisation in that it is somewhere between a Church and a State. I can’t find the annual report on-line, but as far as know one main source of income for the Vatican is the traditional “Peter’s Pence” collection held annually at all catholic churches across the world. The press releases surrounding the 2010 Vatican financial report seems to suggest that deliberate efforts were made compared to previous years to control costs and keep within budget. So, even the Vatican has a use for accounting information – both financial statements of some kind, and management accounting. By the way, if you do find the annual reports of the Vatican on-line, do get in touch
Football and banker’s pay – there is a link?
Okay, so I have no much interest in football, but this recent piece in The Economist makes for great reading if you’re into the footie – or like me trying to paint peformance management issues in a lighter way! You can read the articles for yourself, but the basic theme is that while both banks and football clubs pay high salaries to retain/attract the best talent, the question is does this make economic sense. Arguably, the more successful banks and football clubs get to keep more of their revenues as they make more money by having the best traders/players. So it seems to make sense that pay and performance are linked in banks and football clubs. However, if bankers/players pay is capped, they can move elsewhere, which may have an effect on the performance of the bank/club they leave. So, according to the article, unless a cartel scenario exists in banks it is unlikely that any cap on pay will be useful in an economic sense. It may be what politicians want, but it’s unlikely to make economic sense.
Banning F1 – does it make sense (environmentally and on cost)?
I was in Germany a few months ago and seen a copy of Handelsblatt (a leading business newspaper) on July 20th last at a hotel bar. As you do, I scanned it while ordering a local beer (Moritz Fiege Pils). I noticed that the German Green Party wanted to ban F1 from the Nurburgring and Hockenheim. I read the article and it made me laugh to be honest. The reasoning was that the F1 circus is bad on CO2 emissions and all that stuff. Now a few facts first – I love motor sport, I am a management accountant, I like the old ways of doing things (now called environmentally friendly/recycling/grow-your-own) and I could not resist the picture of the F1 girls for this post.
But, being serious. Research and development expenditure is one of those things a management accountants might find hard to deal with. It’s normally a substantial cost, but the return is often uncertain. Now back to F1 and the German Greens. Motor manufacturers like Mercedes, Honda and Renault (among others) have over time spend $billions on F1. And what do they get out of it? Well, every car nowadays has an EMU (Engine Management Unit) or “brain” that controls and monitors every thing a car does – do you know most cars have no accelerator cables at all; it’s a sensor on the pedal which the EMU monitors and the pedal is tensioned to give the feeling of a traditional pedal. Where was this technology perfected? F1 of course. And nowadays, F1 cars are lighter, faster, more fuel-efficient and even capture energy under braking (the KERS system). Surely this will pass on eventually to normal road cars, which will mean lower fuel consumption and lower CO2 emissions and so on. So, to bring it all back to management accounting. If we were to do as the German Green Party suggests, there would be no F1 in Germany (home of Mercedes), which might mean less research and development expenditure in F1, which in turn might halt the development of more fuel and energy-efficient road cars for you and I. Okay, it might be hard to put a money value on the benefits of F1 research and development in the long run, but it seems daft to try to ban it. So far, the history of F1 has shown us what the cars of tomorrow will have on board. If that means efficient, energy harnessing cars for the future, we need to encourage it. The costs (monetary and environmentally) may be easier to ascertain and outweigh the benefits in the short-term. However, I can only see future benefits from F1 for car manufacturers who should be able to produce (in time), better, safer and more environmentally friendly cars for Joe Bloggs. Kind of goes against what I thought any Green Party stands for to go against such progress. But, hey I am no politician! But it seems a classic case (from the Green’s view) of not looking at all costs and benefits of an activity over the long term.
Microsoft Excel keyboard shortcuts
Like most accountants, I have to resort to Microsoft Excel quite a lot. No accounting software can ever give you all the information you need to make business decisions. Similarly, some ad-hoc decisions just use estimated figures and any calculations can be easily done in a spreadsheet. The more you use software, the more you realise that keyboard shortcuts are often the fastest way to do things. The typical Windows Ctrl+C is very handy to copy something you have just selected with the mouse.
Excel to has lots of keyboard shortcuts. Here’s a great webpage with a long (if not full) list of Excel’s shortcuts.
Three acounting mistakes made by entrepreneurs
I read an article on entrepreneur.com a few months ago. It recounted the experiences of some entrepreneurs in terms of the common accounting mistakes made. The 3 top mistakes/misconceptions according to this article are:
1. Treating sales as revenue before the product is delivered or service provided. A common mistake actually. For example, if you have agreed to sell goods in March, you cannot record the sale until then. There are some exceptions, but let’s keep it simple.
2. Capital expenditure is not reflected in the accounts immediately. If you buy a new asset, you part with some cash. But in accounting, the cash amount spent is recorded against profits over several years. Sometimes the cash outflow may be too much, so you need to consider the cash situation of the business.
3. Proftit and cash flows are confused. The best way to explain this is to think of selling on credit. If you sell on credit, the sale is recorded, but you don’t get the cash for some time later. So, you could be profitable but have no cash – a bad scenario.
The article gives some real examples, so have a read.
Saving money by “greening” buildings.
According to an article in Time (April 18, 2011), a lot of money can be saved by retro-fitting old buildings. I have written a few posts already about this, but this article gives some really good examples of the kind of money that can be saved from some relatively simple initiatives. According to the article, older skyscrapers are one of the worst type of buildings in terms of energy efficiency. Some investment in lighting, heating and insulation can make a huge difference to costs and energy efficiency. For example, the Empire State building spent $13m in 2010 on a retrofit. The result is a 38% decrease in utility bills and a payback period of less than three years. Another example is a re-fit of a federal building in Cleveland, which saves $600,000 per annum. The city of Melbourne, Australia is also mentioned. The city’s Lord Mayor sums up well – “this is not some feel-good environmental initiative. It is a hard-headed economic business decision.
Bio-diesel from waste food?
Sustainability in business is a big things nowadays. It can mean many things from saving energy, reducing waste and altering product design. Going one better of course is to completely re-use waste to make a new product. I read a great example recently in the Telegraph [London]. The article mentioned a UK company called Greenergy. The company has invested £50m in a plant to make bio-diesel from used cooking oil, which in itself is a great [if not new] idea. But this company has taken things a little further. In partnership with another company called Brocklesby, the company is now processing waste food into bio-diesel. Apparently, fatty foods like crisps, pies and junk food are great candidates as they are full of fatty oils. While the company has started this new process on a small scale, it seems like a great way to make money out of waste. It ticks so many boxes on the sustainable/environmental side too – it reduces waste to land fill, reduces fossil fuel dependency and may even in the future reduce land use e.g. rape seed grown for vegetable oil.
Data centres costs – weather is a key factor
(Image from Economist.com)
A few weeks ago I was listening to the radio in the car. A news item came on about why Ireland is attractive to companies like Google and Microsoft to set up data centres. It wasn’t tax, or our educated workforce. Much to my surprise it was the Irish weather. Well, I suppose all three are important, but with an ambient average temperature well below 20 celsius, the cost of cooling the data centres falls considerably. Here’s a post I read earlier from Babbages’ blog on The Economist. It gives some great detail on the costs of running these data centres Data centres: Social desert | The Economist. I have to say, as a management accountant weather conditions would not be the first thing I’d consider in cost decisions – a good reason to talk to other people in the organisation to find out what’s going on.
Who makes what for the iPhone, and how much does it cost
As a management accountant, I’m always interested in what products cost to make. In today’s global manufacturing economy, it’s even more interesting as product components are sources from all over the world. Time [May 16, 2011] provides a great example, the iPhone. According to the article, the total cost of the iPhone 5 is $179. Of this amount, $61 goes to Japanese suppliers, $11 to US suppliers, $30 to Germany, $23 to South Korea, $7 to China [where the phone is assembled], and $48 goes to other unknown sources. Given that the selling price is around $500, this means that the loins share of the added value in an iPhone about, or $321, stays within the US company. I have to say I was surprised that China contributed so little to the final value.
New code for Irish charities
In March 2011, the Irish Times reported on a new voluntary code for charities in Ireland. Yes, it’s a while ago and has been on my “to do” list for quite a while. Following the enacting of the Charities Act 2009, all Irish charities must submit an annual activity report to the Charities Regulatory Authority. Larger charities also have to complete and file audited accounts. The new proposed code aims to make charities more transparent financially, going beyond the requirements of the Act. The five key elements of the code are:
- charities commit to good practice and ensure fundraising activities are open and legal
- a donor charter will be introduced
- a complaints and feedback procedure
- a monitoring group will monitor code compliance
- an annual report and a statement of annual accounts will be publicly available
Fuzzy Accounting Enriches Groupon
You may have heard about Groupon going public. Seems some creative accounting is going on. Read the full article from the New York Times here
Fuzzy Accounting Enriches Groupon – NYTimes.com.
Problems at Honda?
Following the earth quake and tsunami in Japan earlier this year, car manufacturers faced many problems. One I have wrote about previously, namely the fact that supplies of components dried-up after the disaster due to the close-knit just-in-time management systems used. The Economist provided another example from Honda recently. Honda launched their new Civic model in April/May this year. The problem of course was whether or not the company could actually deliver enough cars to meet demand, due to production disruption and supplier problems. Other car manufacturers, particularly US ones, would of course benefit. However, for Honda the short term seems still slightly troublesome
Problems at Honda?
Following the earth quake and tsunami in Japan earlier this year, car manufacturers faced many problems. One I have wrote about previously, namely the fact that supplies of components dried-up after the disaster due to the close-knit just-in-time management systems used. The Economist provided another example from Honda recently. Honda launched their new Civic model in April/May this year. The problem of course was whether or not the company could actually deliver enough cars to meet demand, due to production disruption and supplier problems. Other car manufacturers, particularly US ones, would of course benefit. However, for Honda the short term seems still slightly troublesome
A comparison of taxes and take-home pay
Just a short post today, as I’m enjoying some holidays. We hear a lot about the relative amount of tax we pay (in Ireland) as a portion of our take-home pay. An article in the Economist of May 12 last puts Belgium at the top of the OECD countries in terms of how much of the total labour costs is taken in taxes and social insurance. It’s 55% in Belgium. Ireland is much lower at 29%. The UK stands at 33% and Germany at 55%. These figures are for single persons. Things change a little bit when you look at families, but not too much. This spreadsheet from the OECD’s website provides the full details. Take a look at “Tax Wedge overview” sheet in particular.
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