Sorry for another airline related post!
I was on a flight recently from Dublin and as the above photo shows, there was a little incident on the taxi to takeoff. Two aircraft touched each other. The one I was on (above) incurred wing damage, the other one tail damage. I’m not going to try to guess who made a mistake, but someone did. So what did this mistake cost?
Let’s think of costs in a broad sense. Here is my thinking
- Repair costs of both aircraft
- Lost revenue as aircraft are out of service
- Cost of renting replacement aircraft and crew
- Cost of emergency services attending the incident
- Customer service costs e.g. passenger refunds
- Cost of buses to return passengers to the terminal
- Increased compliance costs to ensure such mistakes do not happen again.
And there may be more. I’m just using this incident as an illustration of how we need to think of costs in a broad sense.
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.