May 2009

Words have meanings. Communication has the message, the message sent and the message received. We’re stuck with that. We don’t get to redefine words easily, for convenience. We need to respect the meaning in the other person’s head.

What am I talking about, you ask? (I know–it isn’t obvious.) I’m talking about . . .

• I worked with someone who said “public relations” when he meant what the rest of the world calls customer service. That made business discussions hard, sometimes, because we didn’t share the same definition for that phrase.
• Many people use the accounting term “goodwill” as if it were the ordinary, non-jargon English phrase “good will.” Goodwill in finance and accounting is the difference between the book value of a business and the amount paid by a business to buy that business.
• Many people have trouble distinguishing “assets” as an exact concept in accounting and finance from the general idea of assets as things that are good to have. So, for example, when they pay programmers to develop a website they want to think of that website as an asset. In general terms, it is; but in accounting terms, it isn’t. Website programming was an expense, and it doesn’t generate an asset on the books. That can be very confusing.
• And then there’s the whole problem of “value” and what things are worth. For accounting and finance, an asset is worth purchase price less depreciation. It isn’t worth what you’d sell it for or what you think people would pay for it. It isn’t even worth what it would cost to replace it. It’s worth what you paid for it, less depreciation. Period.

That bothers some people. Particularly in the business plan setting where they’re writing a plan to present the business to others, like a plan for investors, or to back a bank loan. They want to show the value of their website or the software, which has no value in the books (because development is an expense, not a purchase of assets). They want to show that the land and buildings are worth way more than what they paid for them.

In that case, what you need is patience. The extra value comes through to the books when you sell that land and those buildings, when you sell the software you developed, when you sell the website or, better yet, make sales of other stuff because the website is good. There’s a lot of value that goes into the text of the plan, but not the formal numbers, because it hasn’t been realized yet.

This problem of definitions drives some people crazy, and it makes me very uncomfortable. It’s not just trying to make trouble on my part. I seem old-fashioned and inflexible when I fall back on the more established, standard definitions of the words and phrases some people want to give their own special meaning to.

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