Financial Misstatements
blog.samaltman.com
blog.samaltman.com
revenue vs GMV
(if you give GMV, give me your cut/margin)
contract vs LOI
burn vs expenses
users vs customers
(customers pay)
signups vs users vs active users
(you should give active with time interval and measurement of active.
eg. logged in last 30 days)
profitable vs cash flow positive
diff between retention rate vs churn rate
(both should be given with time interval.
eg. 30 day retention rate is...
monthly churn rate is...)
voluntary churn vs involuntary churn
gross vs net
top line vs bottom lineAmazon, for example, uses revenue for first party sales and GMV for third party marketplace, Amazon never owns the product in third party marketplace. If you are a dropship retailer though, you have flash ownership because you buy from the dropship wholesaler and then you sell to the customer using a marketplace or website. You could say Amazon is different here because they physically have the products, but with net payment terms up to and past 180 days, it really isn't much different.
Also, if you just consider revenue to be your cut of GMV and you have net payment terms that gives your company high free cash flow, that seems important to distinguish as well.
[Update] The main point of my post is to show how confusing these terms are in one instance, and every business is different so it is really important to clearly define how you use the terms you are using
1. You have switched the terms in your amazon example. Amazon uses GMV for 1st party and revenue (its cut of GMV) for 3rd party marketplace.
2. Why would you have flash ownership in a dropship model? Seems to me that would be a regular wholesale/retail model not dropship.
Gross Merchandise Value is how much money flows through your system while Revenue is how much lands in your bank account. For instance, a payments processor like Stripe might have a GMV of $100 million while their revenue would only be the 3% commission (in this case $3 million).
A contract is a legally binding and enforceable document. A letter of intent is when one party outlines what they are likely or would like to do - with some bits of it being enforceable like non-disclosure agreements. A memorandum of understanding is a letter of intent signed by all parties involved - it is still non-binding. A term sheet from a VC is like an LOI - however, it doesn't actually happen until after due diligence, negotiation, etc and only official when signed.
Burn rate is the delta in your bank account. Expenses is how much money left your bank account and revenue is how much entered. Thus burn rate is expenses - revenue and is -1 * profit.
Users are people on your site. Customers are paying users.
Signups are how many people created an account. Active users are how many people logged in over a certain period of time.
Cash flow positive means you have more in your bank account than you did before. However, a kickstarter which raised 1 million would be cash flow positive but not be profitable as it has many outstanding obligations.
Churn rate is the percentage of your users/customers who left over a certain duration. Retention is 1-churn.
Involuntary churn is when the customer leaves because they go out of business or in the case of dating apps, no longer need your services. Voluntary churn is all other churn.
Gross refers revenue - expenses of the product. Net is revenue - expense of the product - administrative costs - depreciation - payroll taxes etc.
Top line is referring to gross while bottom line refers to net. Top line growth means more revenue and bottom line growth means cost cutting.
So, let's say I'm a payment processor, and my business model involves me collecting money on behalf of my customers. My customer makes a $100 sale, and it all goes into my bank account. That's still not my revenue, as I received the whole $100 on behalf of my customer. Separately, I charge my customer $2, for the work I did to process the transaction. That part is my revenue.
There are more confusing examples though.
If Uber accepted cash payments, and the driver post paid just the commission, would the whole trip cost be GMV or just the commission?
eg Regular Uber:
Ride Cost: $20.00 GMV (goes through ubers payment system)
Commission: $4.00 revenue
Credit card fees: $0.60 expense
Cash Uber
Ride Cost: $20.00 (Uber never handles this)
Commission: $4.00 revenue
Credit card fees: n/a
Edit: formatting
Interesting...been in finance all my life & dealt with pretty much every industry out there...never heard this one before. Must be some type of startup slang so to speak.
I picture the writers on that movie thinking, "How can we make typing on a laptop, while listening into whatever on head phones seem cool?" Awe--"Wired in" will get their attention?
https://investors.ebayinc.com/secfiling.cfm?filingid=1012870...
No its not. I've seen dozens of retailing operations in multiple countries. None use this term, which brings me smoothly to my next point...
>It refers to the value of the goods sold.
aka CoGS (Cost of Goods Sold) (or CoS in some regions). Unlike GMV you'll actually find that on the financial statement of major retailers. As I said:
>Must be some type of startup slang so to speak.
Would be curious to hear if there is some actual business reason that warrants giving this a new name in the startup context though...
eBay and many other marketplaces use it. My guess is that since these marketplace platforms are not actual retailers their GMV is pretty high as compared to revenue. To showcase the dollar value of total sales that happened on the platform they use GMV. But again I am not an expert in this field.
Yeah I googled it too - a while ago - wikipedia isn't exactly a winning moving here.
>eBay and many other marketplaces use it.
That is deeply disingenuous. You originally said its "term of the trade in the retailing". I called bullsht - because I know its not used in retailing. In response you shift your argument (!!!) and reckon its used by ebay (FYI NOT A RETAIL OPERATION) - and copied the ebay stuff straight off wikipedia.
>I am not an expert in this field
Indeed.
Personal attacks aside, you point still stands and I want to thank you for bringing some actual financial expertise into the discussion :-)
GMV sounds like it refers to what in this example would be revenue from the finished food. A burger COGS is meat+bun+cook, a burger GMV is the menu price.
Am I wrong in my understanding?
>GMV sounds like it refers to what in this example would be revenue from the finished food.
GMV was pulled out of thin air & means nothing at all, aside from CoGS/CoS with a lick of startup paint. Anyone that reckons otherwise please step forward with a coherent argument...
GMV is probably a term more useful in situations where the entity is not a retailer per se, like eBay, who still wants a number to represent the value of the goods they are facilitating transactions upon. They don't own the items on auction so the purchase price is not revenue to them, but the fees are revenue.
Which is different from your Net Sales. Because let say if one of these widgets got returned. And one of them was sold at 20% discount. Your GMV will still be $500 but your net sales will be:
Net Sales = GMV - (discount $20) - (returns $100) = $500 - $20 - $100 = $380
A: Voluntary churn occurs due to a decision by the customer to switch to another company or service provider, involuntary churn occurs due to circumstances such as a customer's relocation to a long-term care facility, death, or the relocation to a distant location.
EDIT: Clearly I have no understanding of fraud.
Either way, at least in Brazilian Law (I work with VC in Brazil, but I imagine there is something similiar in USA), we have a "Hidden Liabilities" clause in our termsheet. It says that anything prior to the investors investiment is liable to the founders only.
It works the other way around with all the ways people get screwed over by the other side.
But another to not know the definitions of words you are using when you should know that? Can you say "I have a million dollars in the bank" when you honestly believe "a million" = 1000?
In both categories of law, there is a subset of offenses that fall under "strict liability" — for which you can be punished regardless of your state of mind when committing the offense.
Fraud, like most criminal offenses, requires establishment of mens rea (knowing wrongdoing), so Sam is incorrect in saying that financial misstates are "felonies" on their face. But once you've become an investor you can bring a claim of breach of fiduciary duty (a tort) — rather than establishing that the CEO intentionally misled you, in this case you only need to show that they breached a "duty of care" — essentially, "you should have known".
IANAL and I have no knowledge of the business/financial/contract end of things. I do know I've signed quite a few "due diligence" and "reasonable effort" clauses. I don't know how legally defensible they are in situations like user reporting when it's not specified.
How those responsibilities translate over to criminal / civil law would be a question for a lawyer. I think Sam's use of "felony" might be meant to get people's attention. Even finding yourself in an argument with your investors over civil liabilities probably means you have huge reputational issues that could kill you among the investor community.
Unless you specifically state that you are using the GAAP term "revenue", revenue could mean anything, just like "made" could mean anything, like saying "we made $1M last month".
I highly doubt if you were making a presentation and you said "We had 1M in revenue last month", and it wasn't actually GAAP revenue, I find it hard to believe you would be subject to lawsuit or arrest. In fact, arrest is even more of an over-exaggeration.
Even Groupon had a hard time defining exactly what its "revenues" were pre-IPO, and yet no one got sued or went to jail.
That said, why not use appropriate GAAP values? You should already know them, assuming you're keeping proper books, so it should be the easiest value to give.
"Revenue" can mean anything. Look up the term online, for example http://dictionary.reference.com/browse/revenue, and you'll see 6 different definitions. One of them is: "an amount of money regularly coming in". How is this definition of revenue wrong, or how could it result you getting sued? The answer is you won't.
Sure it could cause misunderstanding, but that happens all the time. As long as you don't misrepresent it as "GAAP revenue", you're perfectly fine using it in any reasonable way. Unlike what Sam Altman says, it's not a felony. My wife is a CPA and she laughed out loud when she read that.
If the fraud rises to a sufficient level, you can attempt to have the state lock the person up and/or prevent the person from interacting with you.
1. What to the investors think the terms mean.
2. What does the service provider think the terms mean.
3. Can the difference between 1 and 2 be construed as a violation of a contract.
4. If 3, is it possible to discern unintentional vs fraud.
I used reddit because it so easily demonstrates the different tiers of the 1% rule[1], except with reddit there are un signed in users, signed in users who don't do anything, only voters, voters and commenters, people who submit, and "power users". I don't know the details now (and reddit has changed a lot), but last I checked they seemed to descend in numbers by about ~10%. This would be a place where you could easily portray a very different ecosystem than reality, intentionally or not, simply by categorizing the users as "active" or not, and how you're characterizing the value you're getting from them.
[1] https://en.wikipedia.org/wiki/1%25_rule_(Internet_culture)
If you sign up a $120k yearly contract, you have $120k in bookings, but can only recognize $10k of revenue each month.
"Your burn rate is the speed at which your cash balance is going down."
Generally speaking, if you have no revenue then burn == expenses.
So for the period during which most founders are starting to learn about these terms, "burn" and "expenses" are indistinguishable. That tends to cause them to think of them as essentially the same thing for far longer than they should.
I really enjoy reading Sam's posts and I'm usually bookmarking and/or forwarding his articles to a ton of friends. This one is a nice amuse-bouche but I guess I'm use to getting a full meal from Sam. Maybe a quick update with some links is all it needs? Good read otherwise.
Is that cash flow used to fund operations? Is that the accrual based operating expenses? Is that the difference in cash between this month and last month?
Whether this is exactly the best post for that is maybe another question. It definitely raises the question of how, exactly, founders without any accounting are supposed to navigate this stuff. Accounting is a language of its own, whose conventions make sense once you understand the various problems it must solve, but absent that knowledge it is very easy for people to make innocent but very important mistakes.
Also, if your role is an incubator investor, isn't it your job to educate the inexperienced founders about things like this?
fwiw I don't understand how anyone could confuse LOI with executed contract. I mean, really the only way that the concept of a LOI can arise is when you ask "can we get a contract in place?" and the answer is "not at this time" so you counter with "how about an LOI?". Hard to get confused about that..
The primary training I received during the accelerator helped a lot, but it was more along the lines of how to more accurately model in excel. It was up to the CEO (?CFO? if you're lucky) to get all this exactly right, and it's not easy.
I think that when an accelerator knows that its teams are not well-versed in the financial part of running a startup, there should be more emphasis on helping them learn. It's daunting to try to do that alone.
Is it a difficulty in judging their abilities when it's not your area? Is it something where only at a certain size would it be worth the reduced financial risk to have someone on it? Learning from scratch has to be the slowest, highest risk way of doing it -- which is the exact opposite of what a startup should be optimizing for (reduce risk where possible, move fast)
It seems like helping identify business talent is what an accelerator should be helping with, not becoming a half assed B-school for engineers..
There's some implicit assumption here that learning from scratch is better than hiring talent, and I think that's a mistake.
I think the reason is that you are in stage where the CEO personally empties the rubbish bins in the office, that's why.
the "CEO" personally does finances for the same reason the "CTO" personally codes. If either of them can't do something they learn it.
Sam is saying: learn these words.
That said, you may very well be correct. My point was simply that, if it's a good idea, it's mostly not for the same reason that has the CEO emptying waste baskets.
Well before that point, you should have a contract accountant of course.
Personally, I love the fella who empties our trash. He's become a close friend of ours, with his heavily accented "Hello friend!" message he greets us all with and everything!
The accountant and lawyer examples have the opposite characteristics : lots of risk from not hiring someone competent and experienced.
Its the exact same problem with hiring quality engineers. The good ones have many options. So a startup's offer of $150,000/year plus 5% of a company that might not be around in 3 years just isn't that appealing.
I'm guessing the good ones have job options starting around $400,000/year, whether in Finance or public companies.
If you are a great company though, you'll be able to hire a very capable person...
http://www.reuters.com/article/2015/07/24/us-airbnb-cfo-idUS...
EDIT the question was about CFO's not accountants originally.
If your startup is past the garage stage, you should probably have a corporate accountant on retainer so you have an "expert" with whom to discuss these terms. They're not super-expensive.
Perhaps there is a correlation between being a good finance person and not overlooking the risk associated with working for a startup, such that good finance people -- who command high salaries anywhere -- aren't particularly attracted to work at startups, making it even more expensive for startups to hire them than it would be for others to do so.
In the early stage, when your total team is 2-5 people, there's rarely enough work to justify spending a full time, senior salary on a good finance person. You probably have close to zero revenue/billings, so the main jobs are around payroll, taxes, a few accounts payable, and cash-flow projections.
You can (and should) hire an accountant to do the first 2, and work with your accountant to do the second 2, but
1) Pushing all of payable through the accountant is an easy way to lose track of what your outgoings looks like, and end up with dangerously high expenses. At an early stage startup, the founders should be aware of every expense.
2) The founders definitely need to own the projections. Some help from an accountant is going to make a big difference, but they can't do it for you.
But the more important issues are:
- You aren't likely to drag your external accountant into investor presentations. You might (should) get the accountant to review the financials that go into the presentation, but they won't be there to talk about them, so the founders need to know what they mean, and use the right words.
- The average accountant cares about accounts, not investor terms. You cannot really expect your external accountant (who you hired based on their ability to keep the books to an appropriate legal standard) to know whether that piece of paper in your drawer )that they had no part in producing) is a contract or LOI or MOU. Nor would they necessarily know whether certain income streams should be classed as revenue or GMV unless they are quite familiar with your business. They know about income & expenses & liabilities, but those aren't the same thing and part of the problem for founders is that they seem like they should be.
Founders are told to hustle, to aggressively push themselves and their visions in order to build momentum for their businesses. Founders are encouraged to bend - if not break - the rules in order to get things done.
First-time founders are thrown into the world of finance with a good deal of ignorance about the meanings and conventions of specific financial terms, combined with a culturally ingrained bias towards spinning things as positively as possible. Broadly speaking, this seems like a recipe for disaster.
See also: http://www.npr.org/sections/money/2015/07/03/419543470/episo...
Color me stupid, but I am sure the vast majority of founders know exactly what they are doing when they give GVM in place of revenue.
For example no one would buy a home for $200M, sell it for $201M and say I made $201M last year.
Financial Intelligence (http://www.amazon.com/Financial-Intelligence-Revised-Edition...)
Financial Intelligence for Entrepreneurs (http://www.amazon.com/Financial-Intelligence-Entrepreneurs-R...)
http://www.investopedia.com/ is helpful for occasional reference
for people like me who weren't aware of the term.
This is yet another way in which Y Combinator can differentiate themselves as a place for startups. A once a week course on this type of material would probably be very useful for most founders, I'm working under the assumption that most Y Combinator founders are first time founders.
As a side note, it feels like this type of communication straddles the boundary between something that could have been a tweet vs a blog post.
The fun part is that then the VCs will have a direct line into the company's nitty-gritty operations, which really they are entitled to receive anyhow (though usually they just take the board deck at its word..which is not always good).
This might suck for the company since you have the VC in-the-know on your nitty-gritty (though I'd argue that if you don't want them in-the-know, you should not have taken their $$...though I understand it's more complicated than that haha), BUT that might also serve to incentivize the company to build out the finance team quickly, and also give the management team a taste of what a good finance person can provide (assuming the person the VC provides is good, which they should be if they are to be trusted with multiple portfolio companies).
There are honest and competent people willing to work one day a week as contract CFO. Such a person works as part of the management team and doesn't have divided loyalty (management / investors).
Agreed they may have divided loyalty, hopefully mitigated by a very temporary relationship and the fact that at early stages, VCs and founders should be super aligned, at least around the ops numbers (sale decisions, etc. are a totally different ballgame for sure).
Doesn't a16z already do this, not just for finance, but also for PR, hiring, etc.?
This method you talk about is way more commom on large deal, like Private Equity, LBO, etc. Those companies make 2 to 4 deals a year. 10-15 deals isn't a small number of deals.
> I can't read a balance sheet or income statement or anything like that. I have to have someone explain it to me, every Board meeting.
http://www.econtalk.org/archives/2014/07/sam_altman_on_s.htm...
Sam seems to have a healthy respect for his own ignorance, and encourages others do to do the same, particularly in areas where that ignorance can have significant practical consequences. That's not "amusing", it's commendable.
I mean, the whole model of YC is to take kids straight out of college (if not before) and turn them into startup CEOs. If those CEOs come out of that process not understanding the legal obligations of their new position, whose fault is that, exactly? It's not like they're bringing decades of business experience to the gig. The only thing they know about what being a CEO requires is what YC teaches them.
If their only preparation for the post is YC, and they're ending up ignorant of stuff that could get them slapped with a felony charge, I would think that would say more about YC than it does about them.
That said, you may have a point here. If there is a recurring issue that some founders are too immature for their own good and might be a risk to their own personal safety (e.g., committing felonies out of pure ignorance), YC should probably be intentional about filtering those people out during applications. But this article isn't just about YC candidates and that's not a solution for the whole industry.
If sam is saying YC founders are using terms wrong, doesn't that imply that YC was fine with those terms?
So confused.
Anyway, the simple fix would be to just have a 1-3 day finance bootcamp to make sure everyone speaks the same language. Rather than getting everyone to try to being kinda-sorta competent.
For "declining to do any diligence about illegal behavior"? Of course not. Why did this topic come up in the first place?
Re lack of diligence, it's astonishing how people jump to make mean, false statements without a second's pause to consider the obvious.
> I mean, the whole model of YC is to take kids straight out of college
Isn't the average age of YC founders closer to 30?
The fact that there are financial misstatements indicates that there is more need for this type fake work, or perhaps the whole fake work thing isn't so fake after all.
Why not have a bootcamp for a few basic finance rules/jargon? Assuming they see the same sort of issues crop up, surely a 1-3 day bootcamp is a lot less "fake work" than every founder now needing to figure out what they need to know and then know it?
I think college graduates certainly qualify. If I'm going to call myself "CEO" then I better damn well figure out what that means, and if I don't know, I should study or seek the advice of someone who does.
So why wont they? Because maybe it will open them up for liability? I hope that's wrong because they obviously see the need for such a thing, but are too risk averse(?) to provide value there.
Anyway, why are most of sam's post about how stuff sucks/his disappointment as opposed to: this sucks, and here's how we want to try fixing it? He's running the accelerator and this lack of ownership is really hurting the brand.
Sigh. I'm going to get shadowbanned again. What am I saying that's so disagreeable?
As for what's disagreeable in what you said, let's look at your paragraphs: (1) 100% fine; (2) assumes its conclusion and makes an unfair jab; (3) mischaracterizes Sam's posts on the whole, as well as the recent ones; (4) off-topic posturing about bannage.
Regarding your specific complaints: (2)Assuming conclusion and using that to open up discussion is a fairly standard rhetorical practice. Are you saying that that paragraph doesn't move the discussion forward? Why is it unfair? It's an assumption/leading for sure, but it's as fair as anything else.
3) Ok. So here's the thing: when you put things out on the internet, other people read it. They especially read it when it's the top link on HN :). And, they read the content not the intent. Mischaracterization isn't something I'm trying to do malignantly: but unless I'm missing something recent posts have been very much in the vein of "here's what I don't like" rather than "here's how we are fixing some thing we don't like". Maybe I'm still being unfair? But when these posts are up for consumption for the world, the cop-out that it was only meant for the YC class seems a bit silly. Is seeing that opinion voiced really worth the effort of silencing it? Are only "positive" (fawning) posts the ones that are allowed?
4) Are you saying I'm not shadow/hellbanned?
This is only a problem when you're asking investors for more money. That's when you need an accountant to review what you're telling them. You need an accountant and a lawyer at that point anyway, or you're going to get screwed.
It's about seeing a recurrent problem, then helping people by fixing it
And perhaps this is the first step in that process.
https://hbr.org/product/hbr-guide-to-finance-basics-for-mana...
It doesn't specifically address the terms in the OP, but it should be the starting point for non-MBAs (like myself) to start understanding basic Finance.
In my experience, if you're a co-founder and you don't understand basic Finance and let your Finance department do whatever it's doing you may be setting yourself up for trouble. The OP described the other case of simply saying non-sense because you don't understand the terms :)
Not sure who the target audience is. If a business person is willfully deceiving people, let's call that out. But if a programmer is using financial jargon they don't understand, then let's educate them.
It's not hard to read this blog post and come away believing that if you use the wrong acronym accidentally the author thinks you're a felon. I'm sure that's an overstatement, but overall this could have been an article that was educational yet had a serious warning. Instead it kind of stirs drama and fear. That's fine but I can't help but compare PG's essays which are a delight to read and get lost in.
This is probably a too-broad-brush use of the word.
Other than that, I like this essay.
People should be taught financial literacy early and accurately. Like learning maths notation: It's useful, compact and efficient. But...it must be precisely grasped/implemented to be of any benefit to speaker or the audience.
This is incorrect. Fraud requires intent. Otherwise it's just negligence.
Should probably throw a legal dictionary in with the financial one.
From model jury instructions, which might be misleading here: the "intent" a prosecutor needs to establish is that you knowingly said something false, in the process of seeking something of value, that the falsehood was material to the decision of whether to give the thing of value to you, and that the other party later gave you that thing.
The bigger issue is it's very very very very very unlikely that a tiny startup is going to be prosecuted for attempting to defraud an accredited investor.
EDIT: It looks like he ninja-edited the post as it no longer said what I'd read the first time.
Not sure if there's even been a case of a white-collar/financial negligence charge being considered a felony or not though...
Either way, I think sama's point was that this stuff can be A Big Deal and is really important. I don't think any of this discussion contradicts that.
Sam didn't claim that though, he specifically claimed that unintentionally stating incorrect jargon is a felony crime called 'fraud'.
That is incorrect and somewhat ironic in a post about using correct terminology.
Sure. I'm just saying it doesn't detract from the underlying point. But you're right, it is ironic and slightly amusing... Just goes to show, we're all susceptible to making silly mistakes when we step outside of our primary domain(s).
I don't know if a public reversion history is kept or if any of the caching engines picked up the version that I saw.
First instincts of business is often to obfuscate, bury, and ignore. It's not completely unexpected or unusual.
I've actually noticed quite a bit of text on HN that gets modified over time, often with no public revision history or even notice of modification.
Bug? Feature? Oversight? Not sure.
http://feld.com/archives/2015/07/dont-try-fake-language.html
> This year, the firm expects to clock $10.84 billion in revenue which — calculating the 20 percent commission that it takes — should bring in around $2 billion in revenue for the year.
Not disclosing those side agreements to investors was treated as felony securities fraud. It made the company seem more valuable than it really was.
That's the whole dealio. Don't cook the books. Don't make stuff up. There's enough that can go wrong even if you are transparent with investors about your deals.
I've heard some jaw-droppers myself in conversations with other founders/entrepreneurs over the years. It's okay to put a positive spin on it, but it's not okay to lie. You can't say you are "cash flow positive" if you are not in any way shape or form collecting actual cash from anyone.
If you don't understand MBA-level accounting and finance, then the safest and most honest thing to do is stick to concrete numbers and things you clearly do understand. Revenue is actual dollars that land in your bank account-- real money that really exists. Profit is revenue minus expense. Customers are actual people or businesses who have given you money for an actual thing. Contracts are actual promises to do so in the future for some length of time. Users are people who are actually handling, running, or consuming your product right now, etc.
It's also perfectly okay to say "I'm not an accountant" in response to questions you don't understand. Your prospective investors are looking for someone to build a product and sell it, and if you can do that then that's your expertise. Accountants and lawyers can be hired on a consulting basis just like any other domain expert. It's okay not to have expertise in all areas as long as your expertise is where it counts and you have traction/results.
Investors will appreciate that too, since anyone operating as a VC or serious angel will see right through any nonsense you spew. It will simply discredit you, and any investor who doesn't have very sensitive radar for blowhards and con men will not be an investor long.
I see Virtual being an example of this too, though not in AdTech.
Some of this does fall on the VCs. It's very important for the VCs to dig into financials before investing, and asking for precise definitions. It also highlights the need for professional financial talent in startups.
What incentive do founders have to "fix" this when investors aren't doing adequate due diligence?
https://www.sec.gov/News/Article/Detail/Article/135612578701...
UpWork Toptal Gun.io
all list Revenue as total amount via gigs posted not as total amount actually awarded via finished gigs..ie project revenue on system which means that they are over or understating their actual earhed revenue from project fees
Easy to catch as in accounting terms you would list the full project revenue listed on system times the percent project fees as unearned revenue and the booked earned project fee revenue as earned revenue.
This is simply not true for Toptal. Our publicly stated $80,000,000 ARR is top line.
http://www.toptal.com/press-center/top-3-percent
For additional clarification:
You don't post "projects" on Toptal. Everything we do is time & materials, so the concept of misrepresenting financials based on posted projects simply isn't possible. ARR is calculated by actual sales right now multiplied out for a year of time.
BTW this comes into play https://en.wikipedia.org/wiki/SEC_Rule_10b-5
With a good accounting you can check the health of any company with just minute reading of the statements, cash flow, profit/losses, debits for short term, investments, etc.
With accounting you can easily know how your investments are going, when you have many and other people administrating.
You can also use accounting to invest in good companies for long term, and for this, I recommend Peter Lynch books.
Well if you stick the average finance guy in front of a python JIT compiler anyone looking over his shoulder will conclude he's an idiot. Yet somehow the average IT guy thinks it just takes a bit of terminology to "get" the finance side.
in business school, you learn that much of finance & accounting is storytelling with numbers, but with the added twist that there are legal consequences for crossing over (and sometimes, just into) the gray area. that's what sam is pointing out, where the gray area ends and the legal consequences start.
as others have pointed out, quantitative finance & accounting classes can be very helpful:
* financial accounting
* managerial accounting
* financial markets
* investment finance
* corporate valuation
* entrepreneurial financefor protection from a verbal deal going bad, see also: https://en.wikipedia.org/wiki/Estoppel#Promissory_estoppel_2
How come it's only "disruption" when it happens to somebody else.