Accounting Standards that Really Add Up

All companies know that good accounting is vital for business – after all, a business that doesn’t know if it’s ahead (and by how much) isn’t going to be in business for long. But what else can we learn about this critical business practice and how we might do it better? Read on, dear readers, and let’s explore all things accounting!

A Brief History of Accounting

If you can believe it, the art of accounting is over 7,000 years old. It wasn’t very well-suited for hunter-gatherer societies, because in those societies there isn’t much accumulated capital (the food was gathered daily or weekly, mostly without storing it for long periods of time). It was much more suited for farming-based societies where grains and other goods are being stored in cellars for long periods of time. That’s why accounting took hold so well in ancient Mesopotamia.

A huge step in the evolutionary ladder, accounting and trade in this age flourished, and it flourished well. Accounting gave those peoples a way to know that Joe took 3 barrels of grain from the storage sheds and needed to pay it back. Accounting got another boost in the last two centuries with the industrial revolution, because however well suited accounting was for farming societies, it was much better suited for the manufacturing age.

But How Well-Suited is it for the Information Age?

Since the 1950’s, we’ve had a sharp increase in “knowledge workers”. These workers aredefined by Wikipedia as “workers whose main capital is knowledge” – essentially, people who “think for a living”. Businesses that are comprised mostly of these knowledge-workers include industries that handle big data such as marketing firms, consulting firms, and of course, technology firms like Journyx.

So how does this relate to accounting? Well, the assets that are between your ears can’t be repossessed. Depending on the accounting, loan officers might not call a team of copywriters or a team of marketing consultants a “sales asset”. And without assets, your business can’t get loans.

ROA, ROE, and ROIC (that’s return on assets, return on equity, and return on invested capital) are all metrics that don’t necessarily work with a knowledge-worker company precisely because so many of their assets are intangible. And in a knowledge-worker economy, people who are unwilling to learn are less valuable to your company.

How Does this Affect Businesses Otherwise?

Here’s one example: a call center is essentially the knowledge worker equivalent of a sweatshop. You have many employees working far below their intellectual level, which leads to burnout and a high turnover rate. If there was a way to measure new employees’ “assets” (the assets between their ears), the call center could place a new employee appropriately and give other employees the freedom to work in roles that capitalizes on their strengths and career goals. For the business, that means less turnover (and we all know hiring and training can be costly – more on that in a moment) and employees in better-suited positions, which means more profit for the business in the long run.

So About That Training

Today, thorough employee training is often considered a low priority, and when expenses are getting cut, training is often one of the first areas to feel the pinch. But even if we can’t necessarily quantify it in dollars, we all know that training isn’t “just” an expense – a well-trained employee is an asset. Can you imagine the value of a system that made it easy to track the difference between various types of training, going so far as to show how well those employees went on to perform and bring in money for the business? That sort of system would be invaluable for a business owner and would let them maximize the return on investment with employee training over the long term.

Where Does That Put Us in the Scheme of Things?

We believe it would be accounting nirvana to have an accounting system that works around and respects the assets (or pseudo assets, if you will) of knowledge-worked based businesses. Not only would it let you maximize training, but it could have a long-standing impact on the way we run our businesses – for the better. We can only hope that with the knowledge-work boom, this dream will soon be reality.