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Finance for Geeks
- tankenmate 15y agoSurely what the world needs is finance for _Greeks_ no?
- skeletonjelly 15y agoAh. Personal finance. I thought this was finance the industry.
- jacques_chester 15y agoBusiness finance, actually. Not many individuals generate P&Ls, balance sheets or cashflow reports (though in principle nothings stops this from happening).
- travem 15y agoThe article is about corporate finance, I don't know about you but I'm not disciplined enough to maintain income statements, balance sheets and cash flow statements for my personal life.
- candre717 15y agooverkill, too.
- einhverfr 15y agoRight. After all how relevant are questions like "how much did I spend to earn my wages" in personal finance? I am guessing one could get some benefit from asking these questions, but not at all sure that most people would care enough outside of a business setting.
- quesera 15y agoThat's funny, I misread it as "Finance for <i>Greeks</i> -- which might also be a useful, if short[1], article. [1] In entirety: "See Iceland".
- mahmud 15y agoGreeks are foundational to the mathematical theory of finance. http://en.wikipedia.org/wiki/Greeks_%28finance%29 http://en.wikipedia.org/wiki/Greeks_%28finance%29
- einhverfr 15y agoCurrently though the Greeks have crazy* auditing rules regarding VAT, and while this doesn't necessarily hit the finance reports, it is extremely important to be aware of if setting up a finance solution for a business in Greece..... * As in all invoices are printed on government-issued, numbered sheets of paper and you must track the paper invoice to the sheet you purchased from the tax office, and the same goes with packing slips which are called "transit vouchers" So I don't think it would be a short article at all.....
- wtvanhest 15y agoNo, No, No, No, No. Assets = Liabilities + Share holder's equity That is true from an accounting standpoint but does not tell you what a business is worth. Here are the 2 easiest approaches for "non finance people" 1) Value at a future date of selling the business divided by perceived risk. Steps: A) figure out what the perceived absolute maximum value your business is worth in 5 years. B) determine the perceived percentage chance of that happening C) multiple by that percentage. D) discount by risk free rate (this will be over many, many people's heads, but it is the risk free rate because the "risk" is built in to the percentage) E) that is the max value. * Improve the perceived future value or the perceived percentage chance of success or decrease the estimated risk free rate and you will increase your current value dramatically. 2) Use an NPV model to determine the value of your business. This is not a good way to go for VC funding
- jacques_chester 15y ago> Company valuation is a complex subject that I won't attempt to cover here. Suffice it to say that the information on the balance sheet is an important part of determining the value of a company, but it is only a small part.
- adamtmca 15y agoThe article was about basic accounting principles, not enterprise valuation. Its unlikely that anyone who was reading that article to learn about the basics of accounting would be able to gain anything at all from your comment.
- einhverfr 15y agoBut one issue is that very often times you do value intangibles on the balance sheet, so it is a fair criticism.
- wtvanhest 15y agoaccounting and finance are not the same subject matter, finance is more about valuation, accounting is the input that helps determine it. The author is clearly wrong in his/her approach. See http://pages.stern.nyu.edu/~adamodar/ http://pages.stern.nyu.edu/~adamodar/ Buy that guys book, read it, and you will be much better off.
- cdcarter 15y agoIf you're more interested in _personal_ finance for geeks, the manual for Ledger (http://ledger-cli.org/ http://ledger-cli.org/) has some great information in a geek friendly way.
- spiredigital 15y agoAs both a tech and finance geek, one thing that drives me crazy is when someone uses the phrase "I made $X" to describe top-line revenue and NOT their profits. This occurs really frequently due to either people not being informed, or because they are trying to make their company sound as large and successful as possible.
- tomjen3 15y agoFor ISVs it properly doesn't matter much. They usually have rather few expenses.
- roel_v 15y ago0_0 High salaries, marketing costs, for SaaS companies infrastructure? ISV is not necessarily 'long guy working out of his attic' - that model is only sustainable for a small subsets of software.
- einhverfr 15y agoIs it better or worse when they include expenses but don't amortize capital ones?
- mmaunder 15y agoHere are a few books I recommend and have read: Finance and accounting for non-financial managers. A great intro for beginners. http://www.amazon.com/Essentials-Finance-Accounting-Nonfinancial-Managers/dp/0814416241/ref=sr_1_8?ie=UTF8&qid=1324278041&sr=8-8 http://www.amazon.com/Essentials-Finance-Accounting-Nonfinan... A first year accounting textbook like: http://www.amazon.com/Accounting-Principles-Jerry-J-Weygandt/dp/0471980196 http://www.amazon.com/Accounting-Principles-Jerry-J-Weygandt... Then either buy a book on QuickBooks or put yourself on a course. QuickBooks is the best accounting software for startups by far. Only dive into QB once you have a good grasp of accounting principles because it abstracts away the basic accounting equation and double entry system and will give you a false sense of security. Then to get a solid grasp of finance and how investors focusing on fundamentals view your business, read Security Analysis by Graham and Dodd. The '09 edition has some wonderful additions and updates from the finance gods. The financial statements of public companies are available at sites like ycharts.com and I recommend reading them and testing your knowledge by spotting things like dips in net income with no corresponding dip in revenue and figuring out why. What I've described above is about 2000 pages of reading. But slowly work through it and you will come out the other side empowered.
- einhverfr 15y agoI found this to be a very useful, extremely basic (read oversimplistic) account. However, it would be very helpful to start out with single entry vs double entry and accrual vs cash basis (which makes the income statement vs statement of cash flows make a lot more sense). Of course some fundamental ideas (debits vs credits) are complicated enough to explain that most who try are just confused and confuse the reader. Disclaimer: I write accounting software (LedgerSMB) so pretty sure I am a geek who has a decent working knowledge of finances or maybe even a accounting geek.
- vog 15y agoFrom the article: > Your version of Linux is essentially the same as mine. If you try to charge too much of a premium, I will undercut you on price, [...]. Open source companies tend to operate at lower gross margins. That doesn't mean that open source can never work as a business model. However, no matter what anybody says, if two companies have the same risks and operational costs, the low-margin company is a lot harder to manage than the high-margin company. I get the impression that the author is somewhat stuck into the common thinking of software only as a product. The statement above is true if you try to sell licenses. However, there are lots of more clever Open Source business models out there. For instance, you could treat software as an infrastructure like a street or a computer network. You get paid on improving parts of it and/or providing services around it. Of course, software is neither a product that is first designed and then mass-produced in factories, nor is it a street on which regular roadworks are necessary. However, treating it as the latter seems to be more suitable for Open Source software.
- BSousa 15y agoThe fact that the article is from 2003 may have something to do with it, since SaaS wasn't as big then as it is now.
- vog 15y agoThere seems to be a misunderstanding. I wasn't talking about software as a service, I was talking about service around software (e.g. guarantee that it works, provide a hotline for all kinds of issues, which might include fixing bugs etc). In constrast, SaaS is usually quite the contrary of Open Source. You do not only pay per license, but for usage time and/or the amount of data. You don't see the source, you can't make any modification, you don't have any direct access to the machine, and you are (usually) stuck to a single vendor. All of this could be fixed, of course, but as of now, the economy model around SaaS is more an aggravation of the proprietary model, and nowhere similar to Open Source business models.
- roel_v 15y agoRight, and then you end up in the situation he described 3 paragraphs earlier: "In contrast, custom software development or consulting has a lower margin, because programmer time is included as cost of revenues. For every hour of time we charge, we have to pay an hour's wage to the developer who performed the work." So still in a low gross margin position, where the only way to scale the business is to sell more programmer-hours.
- lfittl 15y agoAlso highly recommended: Accounting for Computer Scientists http://martin.kleppmann.com/2011/03/07/accounting-for-computer-scientists.html http://martin.kleppmann.com/2011/03/07/accounting-for-comput... http://news.ycombinator.com/item?id=2298471 http://news.ycombinator.com/item?id=2298471 After reading that article it finally all made sense to me.
- trip42 15y agoI'm going to nitpick a bit and say this article would be better titled, "Accounting for Geeks". Over simplified, finance is more forward looking, while accounting is a reflection or recording of what has happened in the past. Income Statements, Balance Sheets, and Cash Flow Statement are accounting instruments. To be fair, the article talks about funding, which is finance, but brushes over the differences between debt and equity finance and doesn't provide the tools to evaluate when, what, and how to finance. Tech start ups are probably in a, take what you can get, position for funding. Still, having an understanding of finance could help with evaluating things like convertible notes which start as debt and can optionally convert to equity.