
Finance for Geeks - seanlinmt
http://www.ericsink.com/bos/Finance_for_Geeks.html
======
mmaunder
Here are a few books I recommend and have read:

Finance and accounting for non-financial managers. A great intro for
beginners.

[http://www.amazon.com/Essentials-Finance-Accounting-
Nonfinan...](http://www.amazon.com/Essentials-Finance-Accounting-Nonfinancial-
Managers/dp/0814416241/ref=sr_1_8?ie=UTF8&qid=1324278041&sr=8-8)

A first year accounting textbook like:

[http://www.amazon.com/Accounting-Principles-Jerry-J-
Weygandt...](http://www.amazon.com/Accounting-Principles-Jerry-J-
Weygandt/dp/0471980196)

Then either buy a book on QuickBooks or put yourself on a course. QuickBooks
is the best accounting software for startups by far. Only dive into QB once
you have a good grasp of accounting principles because it abstracts away the
basic accounting equation and double entry system and will give you a false
sense of security.

Then to get a solid grasp of finance and how investors focusing on
fundamentals view your business, read Security Analysis by Graham and Dodd.
The '09 edition has some wonderful additions and updates from the finance
gods.

The financial statements of public companies are available at sites like
ycharts.com and I recommend reading them and testing your knowledge by
spotting things like dips in net income with no corresponding dip in revenue
and figuring out why.

What I've described above is about 2000 pages of reading. But slowly work
through it and you will come out the other side empowered.

~~~
einhverfr
We also try to do a decent job in the LedgerSMB manual:
<http://ledgersmb.org/manual>

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einhverfr
I found this to be a very useful, _extremely basic_ (read oversimplistic)
account. However, it would be very helpful to start out with single entry vs
double entry and accrual vs cash basis (which makes the income statement vs
statement of cash flows make a lot more sense).

Of course some fundamental ideas (debits vs credits) are complicated enough to
explain that most who try are just confused and confuse the reader.

Disclaimer: I write accounting software (LedgerSMB) so pretty sure I am a geek
who has a decent working knowledge of finances or maybe even a accounting
geek.

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lfittl
Also highly recommended: Accounting for Computer Scientists

[http://martin.kleppmann.com/2011/03/07/accounting-for-
comput...](http://martin.kleppmann.com/2011/03/07/accounting-for-computer-
scientists.html) <http://news.ycombinator.com/item?id=2298471>

After reading that article it finally all made sense to me.

------
vog
From the article:

 _> Your version of Linux is essentially the same as mine. If you try to
charge too much of a premium, I will undercut you on price, [...]. Open source
companies tend to operate at lower gross margins. That doesn't mean that open
source can never work as a business model. However, no matter what anybody
says, if two companies have the same risks and operational costs, the low-
margin company is a lot harder to manage than the high-margin company._

I get the impression that the author is somewhat stuck into the common
thinking of software only as a _product_. The statement above is true if you
try to sell licenses. However, there are lots of more clever Open Source
business models out there.

For instance, you could treat software as an _infrastructure_ like a street or
a computer network. You get paid on improving parts of it and/or providing
services around it.

Of course, software is neither a product that is first designed and then mass-
produced in factories, nor is it a street on which regular roadworks are
necessary. However, treating it as the latter seems to be more suitable for
Open Source software.

~~~
BSousa
The fact that the article is from 2003 may have something to do with it, since
SaaS wasn't as big then as it is now.

~~~
vog
There seems to be a misunderstanding. I wasn't talking about software as a
service, I was talking about service around software (e.g. guarantee that it
works, provide a hotline for all kinds of issues, which might include fixing
bugs etc).

In constrast, SaaS is usually quite the contrary of Open Source. You do not
only pay per license, but for usage time and/or the amount of data. You don't
see the source, you can't make any modification, you don't have any direct
access to the machine, and you are (usually) stuck to a single vendor. All of
this could be fixed, of course, but as of now, the economy model around SaaS
is more an aggravation of the proprietary model, and nowhere similar to Open
Source business models.

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spiredigital
As both a tech and finance geek, one thing that drives me crazy is when
someone uses the phrase "I made $X" to describe top-line revenue and NOT their
profits. This occurs really frequently due to either people not being
informed, or because they are trying to make their company sound as large and
successful as possible.

~~~
tomjen3
For ISVs it properly doesn't matter much. They usually have rather few
expenses.

~~~
roel_v
0_0

High salaries, marketing costs, for SaaS companies infrastructure? ISV is not
necessarily 'long guy working out of his attic' - that model is only
sustainable for a small subsets of software.

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trip42
I'm going to nitpick a bit and say this article would be better titled,
"Accounting for Geeks". Over simplified, finance is more forward looking,
while accounting is a reflection or recording of what has happened in the
past. Income Statements, Balance Sheets, and Cash Flow Statement are
accounting instruments.

To be fair, the article talks about funding, which is finance, but brushes
over the differences between debt and equity finance and doesn't provide the
tools to evaluate when, what, and how to finance.

Tech start ups are probably in a, take what you can get, position for funding.
Still, having an understanding of finance could help with evaluating things
like convertible notes which start as debt and can optionally convert to
equity.

------
cdcarter
If you're more interested in _personal_ finance for geeks, the manual for
Ledger (<http://ledger-cli.org/>) has some great information in a geek
friendly way.

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tankenmate
Surely what the world needs is finance for _Greeks_ no?

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skeletonjelly
Ah. _Personal_ finance. I thought this was finance the industry.

~~~
quesera
That's funny, I misread it as "Finance for <i>Greeks</i> \-- which might also
be a useful, if short[1], article.

[1] In entirety: "See Iceland".

~~~
mahmud
_Greeks_ are foundational to the mathematical theory of finance.

<http://en.wikipedia.org/wiki/Greeks_%28finance%29>

------
wtvanhest
No, No, No, No, No.

Assets = Liabilities + Share holder's equity

That is true from an accounting standpoint but does not tell you what a
business is worth.

Here are the 2 easiest approaches for "non finance people"

1) Value at a future date of selling the business divided by perceived risk.

Steps: A) figure out what the perceived absolute maximum value your business
is worth in 5 years. B) determine the perceived percentage chance of that
happening C) multiple by that percentage. D) discount by risk free rate (this
will be over many, many people's heads, but it is the risk free rate because
the "risk" is built in to the percentage) E) that is the max value.

* Improve the perceived future value or the perceived percentage chance of success or decrease the estimated risk free rate and you will increase your current value dramatically.

2) Use an NPV model to determine the value of your business. This is not a
good way to go for VC funding

~~~
adamtmca
The article was about basic accounting principles, not enterprise valuation.

Its unlikely that anyone who was reading that article to learn about the
basics of accounting would be able to gain anything at all from your comment.

~~~
wtvanhest
accounting and finance are not the same subject matter, finance is more about
valuation, accounting is the input that helps determine it. The author is
clearly wrong in his/her approach.

See <http://pages.stern.nyu.edu/~adamodar/> Buy that guys book, read it, and
you will be much better off.

