While I am not a fan of zombie films or television programs, I am aware of one attribute all zombies share: they are exceedingly difficult to kill.

A recent article I read in The Economist identified the corporate equivalent a zombie, described why they are so hard to kill, and how they're sucking the life out of global productivity.

According to the article, "One definition of a zombie company is a business whose earnings before tax do not cover its interest expenses."

This means that, while they are not necessarily unprofitable, these firms are failing to produce revenue, profits - or even products and services - commensurate with the inputs of labor and capital they are consuming.

And as they stumble along, neither thriving nor dying off, zombie companies withhold labor and capital from more efficient competitors who could put those assets to use more productively. The result is a significant drag on global economic growth and productivity.

A number of very human factors influence the decisions these firms are making to neither liquidate nor be acquired. We humans fear change and no one wants to be the one who turned out the lights on a going concern.

But, being as the number of zombie firms increased by 75% between 2007 and 2015, and the population of working-age individuals continues to decline in industrialized countries, I believe that shareholders, directors and management alike need to proactively consider putting these marginal companies out of their misery sooner than later.

Global productivity, economic growth and rising standards of living all depend upon it.

Best regards, Peter

I like to believe that, here at Color Accounting®, we have the courage to make a fuss about some issues that other educators gloss over - or don't see at all.

Anyone can impress with complexity and fanciness, but explaining a critical element in simple terms can be difficult.

Point Of View is one of the little things that’s a big deal when it comes to making sense of financial statements. 
 
Because companies exist for the benefit of their owners, readers of company financial statements often think about the information presented only from the point of view of those owners.

For example, a reader possessing an owner's point of view would see equity as valuable when reviewing the company's balance sheet. But, for the company itself, equity is not valuable, only assets are valuable.

This small, simple distinction holds tremendous power when communicating the meaning behind the numbers, but is often ignored - or unseen - by accounting educators.
 
An experienced senior lawyer who attended one or our recent workshops said to me, “Point of view, hmmmm, that’s a big take-away for me.”

Sweet! 

Best regards, Peter

Whether we're talking about individuals, corporations, non-profits or nation states, it would be fair to say that financial security is a universal goal.

And when assessing our security, the only way to determine our financial state - or its trajectory - is by measuring it, which is the role of accounting.

Financial statements tell our financial stories. 

To know where we stand today we measure our net worth - by comparing our assets and liabilities. That’s the story our balance sheet tells.

To know how we’re progressing, we measure our generation and consumption. That’s the story of our income statement.

Understanding these two reports puts us in the driver's seat to take charge of our financial lives. That’s the power of accounting literacy.

But can achieving accounting literacy truly impact our financial well being? There is one group which suggests an answer to that question.

Senior citizens in The Netherlands have the highest percentage of their income coming from personal savings (42%) of any such group in the world.

Is it a coincidence that The Netherlands has a historic place as a pioneer in the art and science of accounting, and that bookkeeping was a widely held skill in cities like Amsterdam going back centuries? 

I think not.

Best regards, Peter

Have you ever wondered why certain people in an organization are more engaged with their work than others around them?

In our trainings around the world, we often find that the more aware one is of the firm's overarching mission, the more personally invested they are in their job.

Consider the tale of the three bricklayers:

While walking down the street, a man saw three bricklayers working. He approached the first bricklayer and asked, "What are you doing?" The first bricklayer replied, "I am laying bricks."

The man then walked up to the second bricklayer and asked, "What are you doing?" The second bricklayer said, "I am building a wall."

The man came to the third bricklayer and asked, "What are you doing?" The third bricklayer responded, "I am helping to build the most beautiful cathedral on Earth. People will visit from around the world to appreciate its beauty."

The argument could be made that the third bricklayer was probably more engaged in his work, enjoyed it more, performed it better, was more respected by his co-workers, had less absenteeism and on-the-job accidents - possibly even earned a higher salary - all because he saw the big picture.

We often observe a change in perspective reflected on the faces of attendees at our workshops, as they come to understand what their company's financial statements are telling them about their role in the organization, and how they personally impact overall success.

Accounting literacy is the common language shared by those who see the big picture.

Best regards, Peter