Accounting systems ‘too backward’ for subscription model

I love these measures, which are far more relevant to one particular client I have and I have been thinking about what measures they should be reporting instead to improve their planning,so this article couldn't have come at a better time!  However, I have two questions:

How do you define non-growth spend in this model?  For this client, I would say non-growth spend is very small, despite growth spend not being large enough IMO.

When measuring Growth Efficiency, are you only measuring growth spend? What constitutes good news: as low as possible?

Many thanks, especially if you answer fairly fast!!

“It’s a tired old way of looking at business. It’s an income statement that tells you what happened. In an annuity business with a retention rate you can be forward looking over time. I’d much rather value a company based on what is going to happen rather than what did.”  

....doing things, thats it Enron.

N/M

MtF

This article is pretty close to perfect, if a little long and written from a software subscription basis.

Gary Turner
Managing Director, Xero
@garyturner

Doesn't the world ever learn? "tired old way" is actually tried and tested assured way.

I agree with mtf its these Enron type of transactions (derivatives included) that have landed us in the financial mess .

Zulfi. 

Whilst Zuora may imply that you should dump the old-style reports, these are required by statute and no sensible FD would stop using all the old measures.  However, it is reasonable, given the rise of subscription-based operations, to look at what manages those best and I can see ways in which the measures proposed are superior.  For example, the distinction between renewals and churn is especially relevant to my client.  I can see nothing Enron-esque in this.

You have two cows.

You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows.

The milk rights of the six cows are transferred via an intermediary to a Cayman Island Company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company.

The annual report says the company owns eight cows, with an option on one more.

You sell one cow to buy a new president of the United States, leaving you with nine cows.

No balance sheet provided with the release.

The public then buys your bull.

With thanks to http://mindnumbingtrivia.wordpress.com/category/enron-jokes/

When you think that there is a better way of reporting financial statements than historic cost accounting, you can only be wrong, almost everyone who has tried this has ended up broke or in jail.  The O/P implied (not directly said) that some guesses about what can happen in the future will be more relevant to this type of business than actual reports of what has happened, I could not disagree more strongly.  Information on renewals and churn has its place in the flannel sections (directors reports, chairmans report, etc) and can be very useful, so long as it is based on historical information, any mention of guesses about the future in anything other than internal information should be taken with a large pinch of salt.

Regards

MtF

in that I read it to mean traditional management reporting is flawed, not statutory or annual reporting.

Whether it's flawed or not is debatable, however what I think is a valid viewpoint is that fast growing subscription based businesses such as the one run by Tien Tzuo require extra management reports alongside a regular P&L and balance sheet, not instead of them.

But I think the point is that he's referring to management reporting, not statutory. And to that extent, I happen to agree with him.

Gary Turner
Managing Director, Xero
@garyturner

Thank goodness you've arrived!  I was starting to think I was operating in a parallel universe or something!  I never advocated dumping the stats, but they aren't necessarily the best tool for management decisions, even if they are a good context for something that is, so that you can sense-check it.  In particular, when presenting financials to people who have no knowledge whatsoever of statutory accounts, etc - they just want to know what they need to know and several of these measures look very helpful to me.