Tomorrow I will be at the Small Business Expo in San Francisco at Fort Mason. If you are around, feel free to stop by booth 342 and chat. Some of my FocalPoint colleagues will be putting on a Small Business Growth Workshop at 11:15. All of this is free so come on by.
I also want to announce that I will be doing workshop with Shane Campbell of B2B CFO and Don McMahan of Flycloud Consulting on October 20th at the Finley Center. The title of the event is: “How To Grow And Manage Your Business Profitably”. This event will be at Lunch on the 20th and we will even feed you! The cost is $25 and I will sending out emails about this over the next month. I hope you can attend. There will be a lot of value delivered by 3 great professionals.
Last week I posted about Autodesk and I want to clarify one of the big problems in understanding their results. During the DOT.COM bubble, one of the problems was that people were accounting for contracts in odd ways. Let me give you an example. Imagine that you sign a new Cell Phone deal on October 1st. That deal is $100/month for 24 months. The question is: How much revenue does the Cell Phone Company declare for Q4 from your contract. There are 2 potential logical answers. First, you could say $2,400 – the total value of the contract. Second, you could say $300 – The amount you will pay in Q4. Under Sarbanes-Oxley, their is only one right answer $300. The rest of the contract is put into “Deferred Revenue” and goes on the Balance Sheet not the Income Statement. Deferred Revenue is an Asset, but many people never make it past the Income Statement when they evaluate a company.
Now Autodesk is changing its business from Software that you Buy to Software that you Rent. That means that Autodesk is changing the way it accounts for revenue the way the Cell Phone Company accounts for your payments. The problem is that Software you Buy is taken as Revenue all at once. So in the immediate term, Autodesk earns less money (gets a smaller payment) than it did in the past. This is true EVEN if you pay for the whole contract up front. The reality is that it ends up being the same money. The problem is trying to translate from one type of structure to another. This is especially true because Autodesk Customers could use older software for a long time. This is like driving an older car. It still works, just doesn’t have all the bells and whistles. Many customers may not convert dollar for dollar from one form of payment model. In fact, they won’t. So, there is no way to apply some formula to know how the conversion is going.
So, when I talked about Risk and Investing this is what I mean. You can’t go to Today’s Numbers and compare them to Last Year’s Numbers and get any sense of how the conversion is going. Any time you do something like this it provides an opportunity for competitors to jump in. I am not implying that Autodesk is doing badly or is doing the wrong thing. I am simply saying that traditional analysis doesn’t help us evaluate how they are doing.
There are other Revenue Problems that sprang from Sarbanes-Oxley as well. All of them meant to make things more clear to investors. I am pretty sure that this effort failed.
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