Business tip

Here is a business tip for any self employed folks out there.

There are some accounting rules that enable companies to take the cost of certain projects to the balance sheet. Normally costs just go straight through to the P&L as expenses and come off the profit in the year they are incurred.

If a project can meet the criteria to be capitalised then the costs can be spread over multiple years. I won’t go into the minutiae of those rules for 2 reasons:

  1. I don’t know them
  2. They are probably pretty complex
  3. If I did know them I wouldn’t bore you with them

ok 3 reasons then.

In capitalised projects the value that gets put on the balance sheet (as an asset) is related to the costs incurred. Therefore – the more they spend the more the asset is worth. Neat.

If you ever get chance to work on this type of project (they tend to be fairly big) there is often significantly more rate flexibility than your standard expensed project. After all the more you charge, the more their final asset is worth.

Of course the costs do hit the P&L eventually but normally depreciated over many years.

Anyone else worked on these sort of projects? Any other top tips?

cheers

Simon

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One Response to “Business tip”

  1. Marcus Says:

    Verbal contracts aren’t worth the paper they’re written on.

    Written contracts are only worth what they cost to defend.

    (I’m a cynic but a happy one).

    The projects least likely to have the plug pulled (in my experience) are regulatory ones where the industry regulator is breathing down the neck of the company to abide by a compliance issue.

    Learn the business/industry as much as you can. I believe I’ve gained more credibility with business representatives from a capacity to talk business issues in their language than any technical knowledge (ever mention an ER diagram and have a business person think you meant a medical program on television?).

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