

Disclosing Your Finances: Should you publicly publish your finances? - j0ncc
http://spencerfry.com/disclosing-your-finances

======
grellas
A few observations based on having dealt with countless startups over the
years from a legal perspective and otherwise:

1\. Officers and directors owe a fiduciary duty to their companies to perform
their duties in the best interests of the company and its shareholders.
Divulging company confidential information such as finances easily could be
construed as a breach of such duties. Thus, in any company having shareholders
besides the founders, public disclosure is a step to be taken only with
caution. Whatever is happy and upbeat today might be otherwise tomorrow and
shareholders may be only too keen to second-guess management if they think
some disclosure ultimately left the company vulnerable (e.g., by helping a
competitor).

2\. You can't ultimately raise money for your company without making
disclosure of financial information to prospective investors and a company
would, in my view, have potential liability risks from legacy public
disclosures that might have been made before the funding itself. What if such
disclosures were inaccurate, as they would be if tainted by puffing or by any
other depiction of the company's situation that appeared to be accurate on the
surface but was in fact misleading. In such a case, what is to prevent an
investor from claiming to have relied in a material way on such information to
his detriment?

There may be other legal risks as well. There certainly are business risks:
giving competitors useful information on where to target their resources based
on your numbers; giving adversaries in a lawsuit added leverage in their
settlement negotiations with your company; giving potential vultures
ammunition for when to close in for the kill in an acquisition (e.g., you
disclose "happy numbers" in a couple of good years and then go silent when you
get overextended as a company and become vulnerable).

In general, one of the great advantages of being a closely-held company is the
privilege of keeping the financial information within a very tight-knit group
inside the company. To give that up gratuitously will in most cases be a big
mistake. Of course, it may make sense for some founder groups to opt for such
disclosure for some of the reasons cited in the post and in this thread. But
this should be the rare exception and not the rule.

------
sivers
He asks, "who are the people who care about this information?" - but forgot
that CUSTOMERS often care, too!

I never considered publishing financials until the dot-com-crash when so many
companies were going under, we started getting daily emails from our customers
asking, "Are you guys going to be around? Everything OK?"

Then I started publishing the info once or twice a year to show that
everything was healthy and fine:

<http://cdbaby.org/stories/02/06/04/5349389.html>

<http://cdbaby.org/stories/03/03/11/2873136.html>

<http://cdbaby.org/stories/03/08/12/6186390.html>

Many customers told me that's why they chose to do business with us. Because
we were so wide-open with our numbers.

~~~
spencerfry
I completely disagree. There are better means of letting your customers know
that everything is going well.

Adam said it best on a comment on my post: "The biggest issue, I think, is #3,
and I'd put it a bit more strongly: most people are financially illiterate.
They don't have a strong sense of the difference between gross revenue, net
revenue, profit, etc. They can't read a balance sheet or a cash flow
statement. This is fine, generally speaking. Although everyone might be better
off with such knowledge, most of us don't really require it to get through our
day."

"In the end, what probably matters most is whether customers believe that your
company is building its success on their backs, or whether they're your
partners in growth. And really it's hard to see how disclosing financial helps
with that perception, and easy to see how it might hurt."

Source: <http://spencerfry.com/disclosing-your-finances#c-2171928>

~~~
lsc
What could be a more effective means of communicating the health of the
company to your customer base?

~~~
spencerfry
Off the top of my head...

1\. Talk/show your user growth.

2\. Blog about how you're all working full-time.

3\. Hiring people. Usually (at least in self-funded companies) the more people
you've got the healthier you are.

4\. Talk about your server infrastructure and about how you just upgraded your
servers / added more servers to keep up with the "amazing growth".

5\. Be active on your blog. Talk up about your plans for the next year. If
you've got plans for the next year... you're probably not going anywhere.

6\. Keep producing updates to your product. Nothing shows the health of your
company like continuing to release updates.

~~~
lsc
Hm. I suppose it depends on who your users are. None of those things would
convince me of your stability. My thought is that usually, the faster a
business expands, the greater chance it has of overstepping itself and
failing. For example, until now, my costs have been such that if I fuck up and
loose revenue, I can pay for operating costs by getting a full time
contracting gig. (I've been expanding, and I'm rapidly approaching the point
where this is no longer the case. But there have been many times during the
last five years when I have fucked it up and I have needed to rent myself out
to pay for it.)

In other words, going full time prematurely almost killed my business, several
times. I mean, I'm full-time now, but as far as stability of the business
goes, me being full time adds quite a lot of risk. (It adds upside, too; I can
get a lot more done, but it means that I have less room to pay for mistakes.)

Thinking more about this, I think part of the disconnect between what you say
and what I think is that I am running a business that is in large part
reselling services I rent from others. (well, I rent power and data center
space, and then I buy servers, install software, and rent out a portion of the
CPU/RAM/etc... but by far my biggest cost is power and data center space. I
almost spend that much on hardware every month too, but that is only because I
am growing. over the 3 year lifespan of a server, the power it consumes will
exceed it's original purchase price, at least when it comes to what I pay for
hardware and what I pay for power. )

The difference is in likely failure modes. If you have a webapp you can run on
a single server (an 8 core/32GiB ram server is gonna cost north of $2K to buy,
but you can host it for under $150/month, and 32GiB ram/8 cores can handle
rather a lot of users.) you really only go out of business when you get tired
of it. most people can support the $150/month server indefinitely, even if
there is not any money coming in. On the other hand, uh, my hosting costs are
large enough that if there was no money coming in, well, I'd need to get a
contracting gig fast. As long as the webapp guy is making plans for next year,
there probably will be a next year. On the other hand, the guy with the high
overhead is likely going to relax when things are going well, and is likely to
plan hardest when he can see failure.

------
briancooley
_I can assure you that openly talking about your revenue if it's not mind-
blowing is going to turn off investors. If you show that your company did
$100,000 a year in revenue last year and increased to $150,000 this year, then
fewer investors are going to be interested in chatting with you_

At some point, these numbers are going to come to light with potential
investors. If your numbers aren't great, not disclosing them might earn you
audience with more investors, but ultimately you'd be wasting time that would
be better spent improving your offering.

Perhaps it's better to let them disqualify themselves.

~~~
smanek
People (including investors) aren't purely rational. After I already like you,
think good things about you, etc. it's easier for me to explain away or
disregard negative things.

I'm sure you've heard about the 'halo effect' or 'post purchase
rationalization' (in this case the purchase price being time/effort, not
money).

~~~
lsc
yeah, but an 'unqualified' investor wastes my time as well as his. I've been
approached by several entities looking to buy out prgmr.com, and we wasted a
bunch of time dancing 'cause we weren't clear at the outset about what we
wanted/had.

I guess it wasn't entirely a waste of time; I was able to pass one of them off
on one of my sort-of competitors. (hey, goodwill for me, and another
competitor I don't have to worry about)

------
dmytton
If you run an incorporated company, at least in the UK, you have to submit
annual accounts which will contain manny of these figures anyway. Although
they won't go into as much detail, anyone can get access to the accounts if
they want.

You can bet that investors will do this, as will interested competitors and
even larger companies you do business with may well dig them up.

Posting figures on a blog is more public, you're drawing attention to them,
but given that the data is available anyway, it might be better to reveal them
on your blog.

(Of course, accounts don't get filed until after the first year...but then you
would only be publishing the last financial year's stats.)

~~~
smanek
In the States you don't have to submit much unless you're public/really-big.

I'd be very surprised if the UK had reporting requirements that stringent for
every corporation ... Do you have a source on that claim?

~~~
dmytton
Indeed, the reporting requirements differ depending on the size of the
company. But even a small company has to file:

a profit and loss account and a full balance sheet

These are submitted every year to Companies House. See
<http://www.companieshouse.gov.uk/about/gbhtml/gp2.shtml> chapters 6 & 7.

------
jacquesm
> I can assure you that openly talking about your revenue if it's not mind-
> blowing is going to turn off investors. If you show that your company did
> $100,000 a year in revenue last year and increased to $150,000 this year,
> then fewer investors are going to be interested in chatting with you.

I don't get that. Does he mean that those investors will not find out in due
course what your turnover is? Surely that would be a part of any - even
preliminary - talks.

And if it is because VCs wouldn't want to be associated with such small
companies then it might hold some water, but not a whole lot in my experience.

What is more important is that if you are successful in some niche that you
don't want to be too lippy about it simply because you are waking up a bunch
of would-be competitors. That's mentioned too, and I think that is one of the
only really valid reasons for holding your cards close to your chest.

But even then, looking at a company from the outside in and having some stats
to work with you can usually get within the ballpark of what a company is
making.

Also, in many countries you do a public filing of what you are making anyway,
usually with the local equivalent of the chambers of commerce. Anybody so
inclined would be able to find out in a heartbeat.

The ground rule to me seems to be don't blab but act as if everybody will know
it anyway.

------
auston
One point I would like to add / disagree with:

"Suffice it to say that I don't think that the press you're going to receive
outside the entrepreneurial community is enough to justify exposing your
finances to the public."

I believe the opposite, most people (outside of tech) do not know much about
products in tech, so they often come to people in tech for recommendations on
everything from cell phones, to computers, to websites for fun / etc.

The same way you might ask a girl what flowers would be nice to get for your
mom.

Recommendations exist in the real world & I personally think that putting
yourself in front of a group of influencers (like the people here on HN) is a
great way to gain word of mouth marketing.

------
evanjacobs
Hey, after this we only need to publicly publish the frequency and variety of
our sexual intercourse and we will have finally opened up every last
previously taboo subject.

~~~
lsc
so you are saying that we should keep our revenue numbers secret not out of
selfishness but because it's impolite to discuss money?

But then, I guess I'm just crass... I never understood why workers tend to
keep their salaries secret from their peers; it seems to contribute to
asymmetrical information distributions, in the employer's favor.

