Zombie companies and zombie banks

One of the surprising features of the lengthy economic crisis has been the low rate of corporate insolvencies. One theory has been that the UK is full of zombie companies that can't grow and are only kept alive by ultra-low interest rates.  Some even think that a rise in rates would be a good thing because it would kill off a lot of these businesses, allowing room for more viable businesses to grow.

In a Pieria article, Frances Coppola takes a look at the evidence and pretty much demolishes this argument.

"...lots of businesses don’t grow. Indeed, the majority of microbusinesses – sole traders and firms with fewer than 9 employees – not only don’t grow but have no desire to do so. Are they zombies? No. They are active economic agents contributing to the economy. We really can’t use the absence of growth as an indication that a company is not viable. Many of these companies happily bump along the bottom for decades...."

"...because it is widely believed that zombies are kept alive not just by low interest rates, but by damaged banks unable to take losses, there are calls for banks to “end forbearance” even if it means they fail themselves. This is madness. Every bank and building society in the UK has corporate debt on its books,  and almost every bank and building society in the UK has a damaged balance sheet which could not cope with large amounts of insolvencies. So banks cannot “end forbearance”.  Nor do we wish them to do so.  

Widespread losses across the entire UK banking sector would catapult the UK back into deep recession. I am no fan of damaged banks – indeed I have called for them to be bypassed so that the UK economy can get the credit it desperately needs. But that doesn’t mean that it would be sensible to bankrupt them all.

So it seems there is little evidence for the existence of zombie companies. But there is considerable evidence for the existence of zombie banks."

Great analysis from an economist who understands the real world.

Building a Better World from Company Data

A plug here for OpenCorporates, a free database of company information from around the world.

It brings together public record information from many different registers to give you access to information on, at today's count, over 61 million companies.

If you need to follow through and understand chains of shareholdings and directorships, particularly if these cross borders, then the information you need is on their website.

It's an invaluable resource and the people running it have the admirable goal of a more open and transparent world.  They deserve our support.

http://opencorporates.com/

How Hard Working are you?

Are you getting a bit tired of being told by politicians that you have to be 'Hard Working'?  
'Hard Working Families' and 'Work Hard and Play by the Rules' have become jarring clichés, robbed of their meaning by over-use.

For a lot of employees, hard work means doing longer hours for less money than previously with someone else taking the majority of the benefit.  And aren't we supposed to be working 'smarter not harder'?  That's certainly what most of us try to do.

And what's so great about hard work anyway?  Most people, while not being afraid of hard work, and giving it their all, go to work so that they can enjoy holidays, leisure, time with family & friends, whatever it is that makes life worthwhile.  Mary Evans of the LSE nails this canard here.  

" ...the vindication of what seems to be a mindless new religion, that of hard work, seems singularly pointless as well as inappropriate. Not only does this religion divert attention from more important questions about the morality of rewards (or the lack of them) but it also completely fails to ask questions about the value of work and its products. The doctrine of ‘hard working’ then becomes the worst kind of religion, refusing questions and possibilities, and all too likely to guarantee less the pious boredom of paradise than the life doomed to unrewarded servitude."

We'd all like to hear something a bit more uplifting from our leaders.

Preparing a Cash Flow Forecast - part 2

Here's the second part, which takes you step by step through preparing a forecast on Excel.

http://www.youtube.com/watch?v=3zpy6ImSC3o

Preparing a Cash Flow forecast part 1

I've made two videos on preparing a cash flow forecast.  Here is the introduction.

http://www.youtube.com/watch?v=5s2mW_psxMg

Shock news - a kinder, gentler Ryanair

Michael O'Leary has declared himself tired of the public abuse he receives about Ryanair's service and determined to improve.

He has pledged to soften Ryanair’s image and overhaul the airline’s customer relations strategy.

“We should try and eliminate things that unnecessarily piss people off,” said Mr O’Leary.

Lucy Kellaway notes that the regular on-line abuse the airline receives has had no effect. ("That extra £50-£100 difference between Ryanair and BA is taken not from your wallet but from your soul")  

However, O'Leary can no longer stomach the criticism he regularly suffers to his face, even when out with his children.

It's interesting that whatever we think about the power of social media, tackling a CEO in the off-line world may still be the best way to bring about change.

Banking Scandals

‘The public have a sense that advantage has been taken of them, that bankers have received huge rewards, that some of those rewards have not been properly earned, and in some cases have been obtained through dishonesty, and that these huge rewards are excessive, bearing little or no relation to the work done.’

So says John Lanchester, quoting the Parliamentary Commission on Banking Standards in a very readable overview of the mind-boggling banking scandals of recent years.  He categorises them as follows:-

First,  'the biggest of them all, the grotesque toxic-asset and derivative spree which took the global financial system to the edge of the abyss.  ...  The crisis and its consequences are too big to count as a scandal: they’re more like a climate.'

Second, the 'old-fashioned' banking scandals:  'Traders take financial instruments created to control risk and use them to make huge bets; sometimes they do it with their bosses’ approval, sometimes without. That’s just how they roll. Every now and then one of these bets goes wrong on a huge scale. The banks always claim they have procedures in place to control the relevant processes and manage the risks involved, until it turns out that they don’t.'  

There have been two of these recently.  'These losses were caused by Kweku Adoboli, the UBS wunderkind who lost £1.4 billion in 2011, and Bruno Iksil, the ‘London Whale’ at JPMorgan Chase, who in 2012 lost an amount described by his boss Jamie Dimon as ‘a tempest in a teacup’, until it turned out to be $6.2 billion.'

Third, banks wildly over-extending themselves through reckless lending.  The classic case here is HBOS.  'This was a traditional bank failure pure and simple. It was a case of a bank pursuing traditional banking activities and pursuing them badly. ... In other words, the single biggest factor in the collapse of HBOS was simple incompetence. And let’s not forget what happened next: when HBOS was clearly about to go broke, it was taken over by Lloyds, with the encouragement of the government. Unfortunately the extent of the losses was so great they ended up bringing Lloyds down too, and the new combined bank was bailed out by the taxpayer a month after the takeover.'

Fourth, LIBOR manipulation.  ‘This dwarfs by orders of magnitude any financial scam in the history of the markets'.  The full scorecard isn't yet in plain sight as cases wind through courts around the world, but especially in the litigious USA.  Total compensation costs are expected to run into tens of billions.

Fifth, 'sexier forms of overt criminality such as money laundering and drug dealing.'  Standard Chartered and HSBC have both been fined hundreds of millions of dollars in the USA.

Sixth, the RBS back-end payment system implosion of 2012.  The UK taxpayer paid out billions to keep the cash machines open in 2008, then RBS managed to shut them down from sheer incompetence.  ‘Completion of new home purchases were delayed, others were stranded abroad, another was threatened with the discontinuation of their life support machine in a Mexican hospital, and one man was held in prison.’

Seventh, PPI mis-selling.  The costs of this scandal keep going up and the latest estimate is £16 billion.  Lanchester feels this is the worst of all, 'because it involves a more basic breach of what banking is supposed to be about: looking after other people’s money. That’s the first thing that is qualitatively different about PPI; the second is that the misdeeds happened not inside rogue units of these huge global institutions but at the centre of their retail operations. This was an industry-wide, systematic cheating of the banks’ own customers.'

It's well worth reading in full and quoting whenever anybody tries to convince you that a large financial sector is a good thing for an economy or a country.

Keeping Your Suppliers Happy

Managing suppliers is an often neglected part of the financial manager's craft.  Everyone understands the importance of keeping customers happy (provided they pay their bills) but there can be a different attitude to suppliers, who are seen as a necessary evil at best, an annoying distraction at worst. There always seems to be a supplier kicking up trouble for you at the very time when you’re busiest with other things.

The positive side for you is that suppliers only want one thing from you – cash. If you can keep a steady flow of funds to them, they will not bother you.

This article sets out how to look after suppliers in a way that will minimise the distraction and the time spent.  

Key points:

• Work on your systems to ensure they are as efficient as possible

• Target a reduction in phone calls received from suppliers chasing money

• Build relationships internally and externally

• You may still have to delay payments, but don’t compromise your ethical standards

How secure is your data?

The recent revelations of the extent of Government surveillance of the internet have generated much commentary on the implications for individual privacy, as well as coverage of the attempts of those involved with the whistle-blowing to stay out of the hands of the law.  Surprisingly little has been written about the implications for the commercial world.

Firstly, you have to assume that your email and social media traffic is being capable of being read by at least the UK & USA governments.  For the vast majority of traffic, there's nothing that could possibly be of interest.  However, if you have business dealings with the Government, or if you're involved in any activities that may be seen to be on the edges of legality, then you should be worried.  This certainly applies if you're involved in 'tax mitigation' activity.

Secondly, the knowledge about how to crack internet security must be extremely widespread.  Edward Snowden was a lowly employee of a sub-contractor, but easily got to understand the entire scope of the NSA operation.  If someone in a similar position to Snowden decided to just take what he could and sell it to a foreign government, or criminal gang, would we ever know?  The technical knowledge of how to tap into communications must be in the hands of many thousands of people, with worrying implications for the security of corporate networks.

Thirdly, there is worrying evidence of intimidation of journalists going on.  Glenn Greenwald at 'The Guardian' and his colleagues are bravely standing up to this  If other journalists have given in to intimidation, then we probably wouldn't hear about it.  So we have to be sceptical whether we are getting all of the news and information we need in this area.

Fourthly, if you're concerned about data security, you should be very cautious about using products from large American or British suppliers.  Companies with data stored on American servers may well already be in breach of European data protection law.

And fifthly, a whistle blowing policy is essential for any organisation wishing to keep its reputation intact.

There are, I'm sure, many other implications of this affair which should be leading us all to rethink our use of technology.

Collecting Debts From Your Customers

It's a cliché that without cash flow a business will die. Collecting cash from customer is something that every business person needs to be an expert on. This article sets out some practical things you can do to improve your collection process.

Key Points

• Check out customers before you start to deal with them


• Understand why customers do not pay


• Build relationships internally and externally to improve your chances of getting paid


• Don't be afraid to get tough if a customer isn't paying

Why a medieval peasant got more vacation time than you

Reuters report that:

"Life for the medieval peasant was certainly no picnic. His life was shadowed by fear of famine, disease and bursts of warfare. His diet and personal hygiene left much to be desired. But despite his reputation as a miserable wretch, you might envy him one thing: his vacations.

Plowing and harvesting were backbreaking toil, but the peasant enjoyed anywhere from eight weeks to half the year off. The Church, mindful of how to keep a population from rebelling, enforced frequent mandatory holidays. Weddings, wakes and births might mean a week off quaffing ale to celebrate, and when wandering jugglers or sporting events came to town, the peasant expected time off for entertainment. There were labor-free Sundays, and when the plowing and harvesting seasons were over, the peasant got time to rest, too. In fact, economist Juliet Shor found that during periods of particularly high wages, such as 14th-century England, peasants might put in no more than 150 days a year.

... Go back 200, 300 or 400 years and you find that most people did not work very long hours at all. In addition to relaxing during long holidays, the medieval peasant took his sweet time eating meals, and the day often included time for an afternoon snooze. “The tempo of life was slow, even leisurely; the pace of work relaxed,” notes Shor. “Our ancestors may not have been rich, but they had an abundance of leisure.”

... As for the modern American worker? After a year on the job, she gets an average of eight vacation days annually.

... Ironically, this cult of endless toil doesn’t really help the bottom line. Study after study shows that overworking reduces productivity. On the other hand, performance increases after a vacation, and workers come back with restored energy and focus. The longer the vacation, the more relaxed and energized people feel upon returning to the office. "

That should cheer everyone up at the end of the holiday period!  Full article here

Budgeting and Forecasting for Business

Every business needs to plan ahead by forecasting the future. Done well, it is a powerful tool for steering and controlling the company. However, in too many cases, the process seems never-ending, is plagued with conflict and manoeuvring, and leads to short tempers & injured feelings.  

It is incumbent on you to approach it in a way which minimises the workload and the potential for stress. This article sets out some proven approaches to the process and helps you to deal with the vagaries of budgetary behaviour and game playing.  It is written from the point of view of a CFO.

Key Points

• Budgeting and forecasting is a business process before it is a financial one
• Plan and organise your process to the utmost
• Leave time for revisions and debate
• Use technology to the best effect
• Be alive to the behavioural aspects of budgeting
• Ensure the maximum involvement of operating managers

Cash Management for Business

Introduction

‘Cash is the life blood of a business.’ ‘Without cash a business will die.’ ‘Turnover vanity, profit sanity, cash flow reality.’ All terrible clichés, but no less true for all that. Keeping the cash flowing is the indispensable task of the finance function, on which the whole enterprise depends.

I've written an article here on how to manage cash flow in a business.

This article won’t tell you how to prepare a cash flow forecast – there are plenty of accounting manuals that can do that. It will tell you how to manage and improve your process so that you can maximise your business’s cash flow.

Key Points

• Cash management is the indispensable task of the finance function
• Make the bank manager your friend
• Involve selling and buying departments in improving cash flow
• Watch for fraud
• Forecast and monitor your cash performance

Board Presentations for Finance Professionals

The monthly results meeting is your chance to shine. You are centre stage; everyone will be listening to you and taking a detailed interest in what you say. Get it wrong and you will be written off as ineffective or incompetent. Get it right and the board will recognise your credibility, professionalism, and value to the business. It is a career-enhancing opportunity which is available to few other disciplines. This article outlines what you need to do before, during and after the meeting.

Before the meeting

Like any other activity, careful planning and preparation will give you the best results. Ensure that there is adequate time between your completion of the management accounts and the board meeting for you to carry out these preparation activities.

Flawless presentation

The reports that you will issue are going to be scrutinised in detail. Ensure that they are flawless:

• Tables add up correctly
• Formatting is consistent
• Cross references are correct. You need to be one step ahead of the smart director who will be looking out for inconsistencies in your figures.
• Grammar, syntax and spelling are completely correct. Use the automated checkers on your computer, but don't rely on them exclusively. If you aren't confident in your own written skills, get someone else to scrutinise the reports.
• Above all, you are relying on the management accounts to be correct and credible.

Logistics

If reports are to be distributed in paper form, check that each copy has all the correct pages before sending. Take a few spares with you to the meeting.

If the results are to be presented on a projector, ensure you have a back up plan in case of technology failure.

• A spare projector would be ideal.
• Ensure there are at least 2 computers available that could run the presentation.
• Have the presentation files on a memory stick for fast changeover.
• Have a hard copy of the presentation for your own reference. If the technology fails completely, you can quickly get paper copies run off.
• Practice connecting the computer to the projector and loading the presentation until you are completely comfortable with how it works.

Get to the meeting room early & stake out a good spot with plenty of space.

Check that the chairman has organised adequate seating, refreshments and coffee breaks.

Script

Think carefully about what you want to say & how you are going to say it. Reading out your report line by line will send the audience to sleep. You need to highlight the most salient points and invite questions.

You should always comment on sales & profit performance, on variance to budget and/or forecast, on changes from last year and on any unusual trends. Otherwise, if an item is on target, or has been discussed at a previous meeting, there's no need to raise it.

You do want to raise items that are unexpectedly good or bad, or where there is action needed.

Discussion

If you are going to raise a subject that may lead to criticism of another attendee of the meeting, you should always warn him or her about it beforehand. You should provide any counter-evidence and help develop the 'case for the defence'. Raising a subject without doing this will get you a reputation for being untrustworthy.

Consider what areas of the report are likely to be questioned and have your explanations ready. Also consider what areas are likely to lead to discussion and have additional evidence available if necessary.

If there are areas of particular controversy, it may be worth rehearsing what you are going to say. Better still is to practice your speech with somebody outside the business, if possible.

Additional data

You should have a data file prepared containing more detailed information than there is in the report. If you prepare this carefully, you should be ready for any questions that come your way.

During the meeting

Provided you've done your preparation thoroughly, the meeting itself should go smoothly.

• Stick to your script
• Answer questions as you go along, referring to your data file as required.
• Ensure you get over all the points you wanted to make.

If you are asked a question to which you don't know the answer, you should never bluff, but instead say 'I don't have the answer to that here, but will look it up and get back to you.'

If someone asks you a question that requires you to refer to your data file, you should set yourself a 20 second limit to find the information. Spending longer than that leafing through the file will make you appear disorganised and not on top of the numbers. Stop after 20 seconds and say. 'No, I don't have that with me. I'll look it up and get back to you.'

It's fine to say that once or twice a meeting, but any more and you probably haven't prepared in all the right areas.

Make notes during the meeting on actions and follow up questions allocated to you.

After the meeting

As soon as you can, take a few minutes to reflect on how you could have done better:

• Having different information available
• Answering questions in a different way
• Presenting the information more clearly

Be self-critical, but don't beat yourself up too much. You will have another meeting in a month's time at which you will be able to correct these faults. People will be impressed if they see you developing and learning from past experience.

If you have committed to get back to people with information, make sure you do that promptly.

Review any other actions from the meeting and ensure they are dealt with.

On a longer time frame, you should constantly be reviewing the contents of the reports that you present. Ask people what they need. Always be looking to remove items if they are not required. Most board reports are far too long and information could easily be removed without compromising the standard.

Your CEO is the key customer for the board report and you should consult him or her regularly about content.

Conclusion

Actors are only as good as their last performance. In presenting the monthly results, you have twelve opportunities a year to demonstrate your skill. Make sure you are constantly improving the way you do it and your true worth will be recognised.

Key Points

• Presenting monthly results is a golden opportunity for self promotion and career development
• Planning and preparation must be exact and thorough
• Have back up materials that will help you answer foreseeable questions
• After the meeting, reflect and learn from your experiences
• Follow up any actions promptly

Article Source: http://EzineArticles.com/7922863

Month End Closing - How to Have a Better Process

Month End closing is the bane of the finance person’s life – but also our main raison d’être. We have to meet demands for ever more detailed information, all of which must be understood and explained, in ever shorter time scales, while carrying on with our day to day responsibilities and not compromising professional standards. It’s no wonder we get stressed.

Fortunately there are some well proven techniques for making the process easier and more efficient. And because it happens twelve times a year, we have plenty of practice to get it right.  

The golden rules for stress-free closing:

·         Plan.          It needs to go like a military operation.

Everyone involved has to know what they are doing every day, & to have Finance on their back if they fall behind. A key step is to issue a timetable in advance to everyone involved.

·         Delegate.   Don’t do it all yourself, use the team and other departments.

Using other departments may take some persuasion and negotiation, but it’s about people taking responsibility for their areas. Finance is responsible for accounting, but not for sales, stock, purchasing etc & people in those areas have to play their part in the process.

·         Use technology.

                Almost any process can be improved with better use of IT.

·         Shorten time scales.

              It may sound like a recipe for more stress, but the quicker you can finish, the more time in a month you have when you aren’t doing closing. There’s also a lot that can be done before the end of the month.

·         Learn.        A continuous improvement approach must be adopted.

              All the time be looking for ways to make things quicker and more efficient. If you have an idea, make sure you write it down and put it into effect the following month. It may only save you a couple of minutes, but if you make a lot of small improvements, there can be a big difference in the closing process.

There's even more detailed guidance and suggestions here.

Review of Xero Accounting software

Introduction

I've recently implemented Xero accounting at a client, migrating from a larger legacy system.  This article is a review of our experience which I hope will be useful for anyone considering the same move.

The software was developed in New Zealand, but now has 200,000 users around the world.  The UK version seems perfectly adapted, and I didn't detect any kiwi flavour at all.

Getting started

It couldn't be easier to get started.  You go to xero.com, create a free account and you immediately have your own demo company on which you can try out the software to your heart's content.  Once you're ready to go live, you give Xero your credit card details, register your company and follow the very clear wizards for getting things set up.  Migrating data from a legacy system is always a challenge, but Xero makes it as easy as it can be.

Look & Feel

Xero has a very clean appearance with screens displayed in calming blue, cream & white.  Their slogan is 'beautiful accounting software'.  I can only say it hasn't started to grate yet.

Ease of use & help screens.

When you sign in, you get a dashboard showing key information on cash, customers and suppliers.  I didn't find this particularly useful, but it can be customised.

You can quickly find your way around, although the menu structure isn't always completely intuitive.  For example, the main thing a lot of users will want to do is to enter a purchase invoice.  To do this, you have to click 'Accounts > Purchases' & you're then presented with a subsidiary dashboard screen.  It's not immediately obvious that '+New' is the button you need.

That is a quibble.  Once you've gone through the menus a few times, everything becomes very easy.   And the screens where the work is done are extremely clear and user friendly.

Customer & supplier master data is held in a single 'Contacts' area, which is unusual.  Contacts are all stored by name rather than having account numbers.  I can imagine this causing difficulty if you have contacts with similar names - perhaps branches of the same company.

However, Xero scores very highly on user help.  Most screens contain a brief explanation of what to do.  These explanations can be hidden once you are familiar.  The more detailed on-line help manual is the clearest and most comprehensive I have ever seen, well written and fully searchable.  There's only been one occasion when I wasn't able to find what I needed.  A quick email to the support desk got me an answer within an hour.

Functionality

Xero covers all of the basics - general, sales and purchase ledgers plus cash book.  There is a good range of standard reports included.  Also available, although not used by us to date, are modules for payroll, expenses and fixed assets.  Xero doesn't have the ability to handle stock control, sales orders or purchase orders.   However, there is a wide range of addons which are endorsed by Xero and claim to be fully compatible with it.  These can also be used to add features such as point of sale and CRM.

Bank statements can be loaded into the system very easily and Xero suggests matches with open transactions in a way that simplifies the reconciliation process.

More generally, practically any kind of data can be uploaded or downloaded.  There are lots of time saving tools that keep re-keying to a minimum.

If you want to use cost centres, or introduce any other dimension of analysis into your accounts, there is a feature Xero call 'Tracking'.  Any transaction can have a tracking code attached to it and there are reports available to analyse by these codes.  This feature could benefit from stronger controls.  There are no warning messages if you forget to enter a tracking code where there should be one.

A big plus for Xero is that they actively encourage feedback and, based on user feedback, they are constantly making improvements to the software.  These improvements are added automatically at no additional charge.  That's very different from the model we are used to where every few years you have to pay for a massive disruptive upgrade.

There's a lively online forum for Xero users.

Forms design

It's very quick and easy to design your own forms such as sales invoices and remittance advices.  These look professional and incorporate all of the right details, including logos.

Security & performance

Adding users is very easy with a quick exchange of emails. There are only 2 levels of security and it's not possible to fine tune the screens than any particular user can access.  We ended up having to give everyone the highest level of security.  Because the system is online, you can give access to an accountant or external adviser without having to disturb day to day operations.

There's a very clear audit trail.  You can see who's been in the system and for how long.

The software is in the cloud, so can be accessed from anywhere with an internet connection.  Very helpful if you love working from home.  Our broadband's not the fastest, but I never experienced any unacceptable delays in response times, suggesting the software is well engineered.  We haven't experienced any system downtime at all.  The security measures explained on Xero's website are high grade.  I wasn't able to find anyone critical of Xero's performance in this area.

Cost of ownership

Xero are aiming to grow a huge market share by pricing themselves very competitively.  They charge just £24 per company per month for use of the software, reduced to £19 if you don't need to account in foreign currency.  This covers any number of users and unlimited access to support and help.

Conclusion

The key criterion in any software decision is that the software meets the detailed business needs.  Assuming Xero fits the bill, then it's a superb choice because of its ease of use, security and low cost.  It's easy to see why so many people are switching to it.  I'm happy to join them and to recommend the product very strongly.

Cloud Accounting

Xero is currently the leading cloud accounting software package.  I've recently implemented it for a client.  In this article, I set out the pros and cons of moving accounting into the cloud.  A future article will be a review of Xero specifically.

What is Cloud Accounting?

Since computerised accounting was invented, it has involved buying software, installing it on a computer at your own premises, being responsible for keeping it up to date, backing up data, paying a fee for support and periodically paying out again for upgrades to the software.

Cloud accounting does away with all of these steps.  The business user enters into a contract with a cloud provider, paying a straight monthly fee.  The software is held on the provider's server and accessed over an internet connection.  All the user's data is also stored remotely and the provider is responsible for backups.  Software updates are provided automatically at no additional cost.

To date, it has mainly been developed for small and medium businesses.  As well as Xero,  KashFlow and FreeAgent are well known suppliers.  Package software providers such as Sage and QuickBooks have adapted their offerings for the cloud.  The approach is also moving upscale with solutions becoming available for larger enterprises.

Advantages

The over-riding factor in deciding which accounting software to use is functionality - does it meet the business needs?  This is a far more important factor than where it is hosted.  On the assumption that a cloud solution meets this requirement, the following are the advantages over a conventional packaged software approach:-

Cost.  UK pricing for the three leading providers is a maximum of £25 per month per company, regardless of the number of users or number of transactions.  This compares very favourably with the hundreds or thousands of pounds of up-front cost required for a packaged solution.  Furthermore, there are no hardware costs or further charges when upgrades are required.

Security.  The cloud providers deploy state of the art security methods, which are likely to be far stronger than anything a small or medium business could afford.  There is a much lower risk of data loss than with a packaged solution.

Support and upgrades.  Cloud companies offer unlimited on-line support.  It is therefore in their interests to make the software work as well as possible.  Upgrades to the software are made automatically and for free.

Capacity for growth.  There is no limit on the amount of data storage.  Running out of disk space and upgrading servers are problems for the cloud provider.

Availability.  The system can be accessed from anywhere there is an internet connection, at any time.

Disadvantages

Single point of failure.  If your internet connection goes down, you have no accounting system.  This is a worry if you're in an area where the connection is flaky.  That said, broadband availability is becoming a key utility, rather like water or electricity supply and, in most places, 100% uptime is the norm.

Upgrades.  If you don't like any of the upgrades that the provider has installed, that's hard luck.  There's no possibility of rolling back to a previous version of the software.

Dependence on supplier.  If the supplier goes bust, you lose your accounting data.  A periodic download of data to a local computer is good practice.

Less drastically, with cloud accounting you are locked into the supplier who may start gouging you with price increases.  This is also of course true of packaged software suppliers.  It's important to carry out due diligence on your cloud provider, as you would with any other strategic partner.

Response times.  A slow internet connection may lead to unacceptable response times from the server.  In practice, the software is engineered to minimise loads on the connection and very few users report this as a problem.

Conclusion

When looking for accounting software, the primary consideration is that it meets the business requirements.  If a cloud solution can give a business what it needs, it is likely to find that the advantages strongly outweigh the disadvantages.  Many people have reached this conclusion and use of cloud accounting is currently doubling every year.

Technological Change

Despite economic depression, technological innovation continues to occur at an increasing rate.  Here's a quick primer on some of the latest developments which have caught the eye and which have the potential to upset many existing industries. Google's self-driving cars, for instance, sound great for reducing accidents and making travelling easier.  If you make your living driving a taxi or a truck, though, it may not be so positive for you.

On being a professional

'Professionalism' is a term that is loaded with positive connotations.  Everyone knows that if you get a professional to do a job, it will be done properly, completely, and with a concern for customer satisfaction.  Whereas the opposite is - what?  An amateur, a time-server, a dabbler, a novice?

Being a professional means having high standards of work, specialist skills and training that are not easily attainable, and a set of ethical norms that look beyond simple self-interest.  Many of the scandals that have made the news recently would not have happened had people followed professional standards.

Prospero operates to the set of values set out below.  I'd be interested to hear comments on these.  Have we missed anything important?  Or, on the other hand, are some of these norms no longer appropriate?

1.      Respect

We believe in the fundamental value of each person and will treat everyone with whom we deal with proper respect and without discrimination.

2.      Integrity

We will always tell the truth, however uncomfortable.  We will be open and honest with everyone.

3.      Client Service and Professionalism

We do the best we possibly can to help our clients.  We ensure our skills and competences are of the highest level and continually renewed and updated.

4.      Legality

We will comply with all applicable laws and regulations and strongly advise clients to do the same.  We will decline or terminate an engagement if we are at risk of breaching this principle.

5.      Monetary reward

We are a profit making organisation aiming to produce the best possible return for our Associates, but this will never be at the expense of our other values.

6.      Continuous Improvement

We will strive to find better ways to do everything.

The dangers of Microsoft Excel

JP Morgan incurred losses estimated at nine billion dollars in the 'London Whale' case and it turns out that a major cause was a flaw in an Excel spreadsheet.  A formula picked up a sum when it should have taken an average, leading to a series of catastrophic decisions.

What may be even worse, the economic model that has been used to justify austerity policies across the western world in recent years incorporates an Excel error that invalidates its calculations. In fairness, the model's authors do claim that their conclusions would be the same with the correction made.

Excel's flexibility and ease of use make it invaluable in every business.  But it can be incredibly dangerous if proper disciplines are not followed.  It's very easy to make a mistake and Excel won't tell you when there's been an error - it will just give you the wrong answer.

All Prospero FDs are experts in using Excel in a controlled and disciplined way to support business decisions.

Austerity - a dangerous idea?

Professor Mark Blyth explains how the austerity policies came about, what they hope to achieve and why they don't seem to be working.

We're all just peasants!

The shocking revelations about the extent to which the US government is searching online traffic are troubling and throw light on the curious relationship we have with the internet titans like Google & Facebook.  They give us some amazing services for free.  In return, we provide them with intimate details of our life, loves and business.

The Harvard Business Review has an arresting metaphor for this arrangement:

"If you've started to think of yourself as a hapless peasant in a Game of Thrones power struggle, you're more right than you may realize. These are not traditional companies, and we are not traditional customers. These are feudal lords, and we are their vassals, peasants, and serfs."

The latest privacy scandal may lead to an overthrow of this system:

"In the longer term, we all need to work to reduce the power imbalance. Medieval feudalism evolved into a more balanced relationship in which lords had responsibilities as well as rights....We need a similar process to rein in our internet lords, and it's not something that market forces are likely to provide."

Digital life destroyed by hackers

Few of us are as careful as we should be when it comes to securing our digital life.  It's all too common to use an easily guessable password on all of one's websites.  Here's a shocking tale about how this can go wrong, when an American journalist was targeted by a hacker.

In the space of one hour, my entire digital life was destroyed. First my Google account was taken over, then deleted. Next my Twitter account was compromised, and used as a platform to broadcast racist and homophobic messages. And worst of all, my AppleID account was broken into, and my hackers used it to remotely erase all of the data on my iPhone, iPad, and MacBook.

Well worth reading - and acting upon.

HMRC's performance

How are you getting on with the taxman?  There's a disturbing groundswell of opinion that staff cuts and under investment are seriously impairing HMRC's efficiency and performance.  For instance, here, here and here.  And, while it is anecdotal evidence, a lot of people we speak to complain of slow responses, difficulties in communications and inconsistent treatment.

Nobody wants to pay more tax than they have to, but people do expect to be treated fairly and promptly when they deal with the tax authorities.   And surely a business-like approach to reducing the deficit would mean that HMRC would be the one government department that should be strengthened and invested in.  A better performance on closing the tax gap might enable us to avoid some of the more unpleasant aspects of the austerity programme.