Games people play with cash flow • Hacker News Board

Re: Games people play with cash flow

#51

Post by aidenn0 » Wed, Dec 09, 2020, 5:52 PM UTC

valuearb wrote: post #15

thaumasiotes wrote: post #12

Earlier quoted context omitted.

This sort of thing is one reason you might want to tax revenues over profits. Compare https://en.wikipedia.org/wiki/Hollywood_accounting , in which all movies show a formal loss and the concept of "profit" as opposed to revenue exists only to scam parties who agree to be paid out of profits.

Or you might prefer not to tax corporations at all, only distributions to shareholders. “Profits” or “cash flow” kept in the corporation is reinvested capital. It’s creating jobs and growing businesses, even if it’s kept in an interest bearing bank account.

We need to tax capital gains as income as well then, because stock-buybacks become a tax-loophole otherwise.

Re: Games people play with cash flow

#52

Post by fghorow » Wed, Dec 09, 2020, 5:56 PM UTC

As a working scientist, I read the OP with great interest (no pun intended).

In essence from my perspective, the axiomatic approach is like "theory" and the operational approach is like "experiment" or "observation" in the sciences.

There's a very good reason why experiment/observation trumps theory in the scientific method.

Re: Games people play with cash flow

#53

Post by thaumasiotes » Wed, Dec 09, 2020, 5:59 PM UTC

nthj wrote: post #22

hpoe wrote: post #17

Earlier quoted context omitted.

So I've always been confused by this argument of just start taxing the money that goes to shareholders because the business will reinvest it and create jobs and what not. What keeps the company from reinvesting in the form of company luxury cars for the executives, a company home that they let the CEO live in, and executive compensation. Essentially redirecting the money that would've at least gone to index holders t…

Lodging must meet specific rules, or the fair market value of the lodging must be declared as W2 income. https://smallbusiness.chron.com/taxability-employerprovided-...

It's not so easy to establish the fair market value of something that never goes on the market.

Re: Games people play with cash flow

#54

Post by dalbasal » Wed, Dec 09, 2020, 6:07 PM UTC

fghorow wrote: post #52

As a working scientist, I read the OP with great interest (no pun intended). In essence from my perspective, the axiomatic approach is like "theory" and the operational approach is like "experiment" or "observation" in the sciences. There's a very good reason why experiment/observation trumps theory in the scientific method.

Good point. That said, the more distance from hard science you have, the likelier this is to go wrong.

If you're dealing with psychology, economics or such experimental observations can have the exact same problem. They're true in this case, at this level of abstraction or otherwise "not really wrong but not — but not as useful or as powerful as some other framing".

Framing is the key point here. What's in model or not. What questions are your trying to answer. etc. The harder the science, the less flexibility scientists have in framing.

Re: Games people play with cash flow

#55

Post by war1025 » Wed, Dec 09, 2020, 6:23 PM UTC

nickreese wrote: post #26

Most useful article I've read probably this year. After selling our last company I was surprised that the acquirer went on an even bigger spending spree just months after acquiring us. As a bootstrapper this blew my mind. This article helps shine a light on how they pulled it off. They acquired us for the free cashflow the company threw off (uncommon in our industry) and the leveraged that to further their expansion.…

> Most useful article I've read probably this year.

Agreed.

I didn't really care about the should you / shouldn't you raise money part and the whole first principles thing, but the middle half of the article gave me a lot of things to think about and I am guessing I will be checking out the other content on this site for the next while.

Re: Games people play with cash flow

#56

Post by tunesmith » Wed, Dec 09, 2020, 6:25 PM UTC

dissidents wrote: post #38

rossdavidh wrote: post #31

Earlier quoted context omitted.

I think the idea is, when you argue from first principles, you are implicitly assuming that you know all of the relevant first principles. Since you're human and imperfect, there is always a chance that you don't. How to know? Well, empirically, check whether the conclusions you get, seem to hold up to reality. The author's experience was that taking investment $$ was necessary (or at least often useful) in a startup…

Thanks Ross for the reply. I believe that this is a misunderstanding of how propositional logic works. If the propositions or axioms that you start with are sound, and if you correctly apply all inference rules, then the propositions that you derive will also be sound. "Missing axioms" that you did not use do no matter, regardless of their soundness.

A "missing" axiom, in my experience, is not truly a missing axiom that otherwise has no impact on other axioms. A "missing" axiom is one that exposes a bad assumption in another axiom currently being relied upon.

For instance. Socrates is a man, all men are mortal, therefore Socrates is mortal.

But then you discover that a couple of eons have passed and Socrates is still alive. Clearly there must be a "missing" axiom. And after some investigation you realize that Socrates is a Venusian man, and Venusians are immortal.

"Socrates is Venusian" is a missing axiom, but really the problem is that "All men are mortal" is actually false, since it had implicit assumptions that "All men are human" (false) and "All humans are mortal" (true).

Re: Games people play with cash flow

#57

Post by [deleted] » Wed, Dec 09, 2020, 6:26 PM UTC

valuearb wrote: post #15

thaumasiotes wrote: post #12

Earlier quoted context omitted.

This sort of thing is one reason you might want to tax revenues over profits. Compare https://en.wikipedia.org/wiki/Hollywood_accounting , in which all movies show a formal loss and the concept of "profit" as opposed to revenue exists only to scam parties who agree to be paid out of profits.

Or you might prefer not to tax corporations at all, only distributions to shareholders. “Profits” or “cash flow” kept in the corporation is reinvested capital. It’s creating jobs and growing businesses, even if it’s kept in an interest bearing bank account.

[deleted]

Re: Games people play with cash flow

#58

Post by supercanuck » Wed, Dec 09, 2020, 6:31 PM UTC

The author is describing the time value of money https://en.wikipedia.org/wiki/Time_value_of_money

The reason to to take the money now from venture is because it is more valuable now than it is later. The way this author is describing this though reminds me of the folksy, whimsical way some business books are written which makes this article so applealing: e.g. The Goal, How to Win friends and influence people, etc.

Re: Games people play with cash flow

#59

Post by dalbasal » Wed, Dec 09, 2020, 6:36 PM UTC

ihatethissite wrote: post #18

The author creates a false dichotomy when they write that business is either about making profit or managing cash flow. Making a profit requires cash flow management, but managing cash flow does not require making a profit. This article does talk about managing cash flows in a way that involves never making a profit. First, and tangentially, it's interesting that real estate developers do this all the time. Second, i…

I don't think he's presenting a dichotomy at all, false or otherwise.

To paraphrase heavily, he's delving into the fact that these are simply different things. Profit, free cash, EBITDA, etc. These have different implications. Particularly, they translate into capital very differently. Ability to borrow. Ability to raise equity. Pay dividends. This translates into radically different trajectories and outcomes.

In 2020 terms, you might also include growth rate, MAUs or the current trendiness of the startup. This also, essentially, translates into real world effects. Big ones.

Most people, including many "business people" don't quite realize the implications of a positive or negative float. The difference between a -20 day float to a +20. With a positive float, growing itself is cash generative. With a negative float, growing is cash consuming. A business might grow, produce less profit but more cash.

Outside of accounting, there's a tendency to dismiss this nuance as trivial and convergent in the long term. In reality, the future never comes. It's always the present.

Re: Games people play with cash flow

#60

Post by vasco » Wed, Dec 09, 2020, 6:40 PM UTC

jpm_sd wrote: post #2

This is a pretty good article but missed an opportunity to comment in more detail on the 2020 startup/unicorn ecosystem. "Malone’s entire strategy was built around a single fact: that you have to pay up front for cable systems, but then earn back your money via a stable stream of cash for years and years afterwards. Notice how this extreme demand for capital drove Malone to embrace debt, over other sources of capital…

Uber or DoorDash are just extreme examples of the same line of reasoning. You're just moving cash flows not only across time but based on probability. You start by trying to create a business that moves the most cash possible to generate float. Now you might say, that this doesn't work because if you sell $1 for $.80 you'll run out of money. But that's not true, you just have a drag on your timeline that pulls you to zero without further capital inflows, or until you sort out your margins. In a world with very low interest rates (now, and past few years), capital doesn't have many useful places to go. And as we've seen, it has flown a lot into equities and a lot into private funding. That is the inflow of capital that keeps extending Uber and DoorDash's timeline, such that even with a 20% drag, you still have another fool to pull in and keep the party going. If the music stops everyone cries, but if it keeps going long enough, you actually increase your chances of remaining alive. For one you might outlive your competition, but there's many more things that can happen. You can improve your margins (Uber's pipe dream with self driving), you can can have a shift in consumer demands in your favor, or a pandemic that shifts consumer spend super fast, etc. You basically keep growing and extending the timeline and you may get a big pay out.

Or as some would call it, growth investing.