Accounting News Roundup: Tech Startup Profitability and Accounting’s Pay Gap | 05.18.16

Tech companies are profitable (pro forma)

I enjoyed this Bloomberg article about all the ways that growing tech companies claim to be "profitable" by their own definition. SpoonRocket and one of its co-founders, Anson Tsui, serve as an excellent example:

Their efforts failed to achieve profitability by conventional definitions. However, the startup calculated that the business had become "contribution margin positive," meaning that it sells an item—in this case, pre-made meals delivered to customers—for more than the cost to manufacture, distribute, and sell it. There is, apparently, some wiggle room in what expenses can be left out. Tsui said SpoonRocket's definition included the costs of food, delivery worker pay, utensils, food waste, distribution center rental, and certain marketing programs. It excluded costs of customer service, central employees, office rent, and marketing to drivers.

After all that careful math, SpoonRocket's contribution margin was 50 cents to $1 per order, Tsui said. The founders prepared a new pitch for investors highlighting this milestone. "We showed them, and they were just like, 'Oh my goodness, you guys spent $13 million to squeeze a $1 margin out of every order?'" Tsui recalled. SpoonRocket shut down in March and sold some assets to a food delivery company in Brazil.

I think accountants should feel good when they read articles like these because it will remind them that most engineers know next to nothing about business and financial analysis. It's hilarious, really. I mean, they're going to a lot of creative trouble to earnestly tell VC funds that they are "profitable." No accountant would exclude "customer service, central employees, office rent, and marketing to drivers" and call a business is "profitable" with a straight face. Many accountants would exclude those costs, label it non-GAAP, show a reconciliation to GAAP and say, "Look at this, we're profitable," with a wink and smile.

I should clarify that worrying about non-GAAP accounting of private tech startups is slightly different from the worrying about non-GAAP accounting of public companies. The former report whatever they want and don't have to show us their GAAP numbers (which I have qualms about anyway). Public companies lay bare everything — the non-GAAP and the GAAP — so anyone looking at those exclusions can decide whether it's appropriate or not. You may not trust the GAAP numbers either, but at least everything's there. In any case, one of the other guys quoted in the article has it right:

"You can always say, 'We're profitable if we don't include X,' " [Sean] Behr said. "But no matter how many ways you say you're kind of profitable, if your bank account ends up lighter than when you started—eventually, that doesn't work." 

CPA firms are worried about talent

Here's a concern:

“The profession has shot itself in the foot with the 150-hour requirement because it requires a dedication beyond a normal four year accounting degree to start a career in public accounting,” says John D. Anderson, CPA.CITP.CGMA, CIA, MSA, and Founder of 7th Rule Accounting, P.C. in Ann Arbor, Mich. “As a small to mid-size firm, we are having trouble finding applicants who want to dedicate their careers to public accounting. Unfortunately, the CPA designation has lost its cache [sic] as fewer CPAs are available in the workforce. Now, businesses are looking for other certified professionals, like CGAs, CIAs, CFEs and CMAs, for positions which used to be filled by CPAs.”

It seems silly to me now, but I really wanted to have a career as a CPA when I was finishing school. I didn't consider the 150 credits a barrier, but rather just another hurdle, so I jumped that hurdle and started working in a firm. That firm wasn't going to be a long-term fit for me, so I tried another firm. That lasted a little longer but didn't work out, either and then I left the profession. I think the point is, even if you do have recruits who think they want a long-term career in public accounting, there's no guarantee they'll have one.

Plus, these days, going to graduate school or sticking around to get another 25-30 hours seems nuts to most students due to the cost. I mean, school was expensive when I was a student over 13+ years ago and I am still paying off my student loans. Are many people interested in signing up for that? And we're not even considering the profession's cultural problems or the lack of direction yet.

Elsewhere in talent problems: Helping Bosses Decode Millennials—for $20,000 an Hour.

Accounting's pay gap

The Wall Street Journal has a pretty sobering graphic illustrating the pay gap between men and women in US corporations. For accountants and auditors, the median earnings for men is $75,502 and $55,154 for women. For bookkeeping, accounting and auditing clerks, the median earnings are $41,914 and $36,961 for men and women respectively. And for tax preparers the median earnings are $62,707 and $47,137 for men and women respectively.

Previously, on Going Concern…

I wrote about women in accounting firms and a sticky independence situation for PwC. And in Open Items: The most intimidating interview in my life

In other news:

  • Another handsome whistleblower payout courtesy of the SEC.
  • Should We Deny Tax Deductions To Businesses That Market 'Unhealthy Foods' To Children?
  • How A New Picture of Corporate Shareholders May Turn the Tax Debate Upside Down
  • You Have Fewer Friends than You Think
  • "Mr. Chung called Mr. Van Vuuren a 'spiteful moron' and 'a trivial person pursuing trivial things' in emails, according to court documents. Mr. Chung also wrote that working with Mr. Van Vuuren was 'like working with a retarded person' and that Mr. Van Vuuren would be worth more 'dead than alive once we have key-man insurance.'"

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