Blockchain – the future?

In my last blog on productivity and the impact of digitisation on the accountancy sector, I made no mention of at all of blockchain. A few days later, the front page of the Economist read “The trust machine: How the technology behind Bitcoin could change the world”, and two days later, the FT ran a full page feature on the impact of blockchain technology. This is rapidly shaping up to be a game changer across a huge number of markets in the no-so-distant future. So what exactly is blockchain?   Very briefly blockchain uses cryptography to build a dependable ledger, allowing parties who do not know (or trust) each other to manage transactions between them. So if Alec wants to make a payment to Beryl, Alec’s transaction is fed into the blockchain through a cryptographic ‘hash’ function which boils the transaction down into a sting of data and which is loaded into a block. Through a series of actions involving such esoteric concepts as miners and merkle trees, the payment leaves Alec’s online wallet and appears in Beryl’s. (For a good guide to the steps involved, have a look at the 31 October 2015 copy of the Economist hyperlinked above). The most important features are that once the transaction has been commenced, it cannot be tampered with – this relies on a network of computers (miners) unbundling the block using a complex process of trial and error. The technology involved is all one-way – the puzzles can be solved and checked but the underlying data cannot be changed.   Back in May 2015, the Economist ran a similar article...

Crowdfunding

Crowdfunding as a source of investment been around since 2008, driven by the ongoing development of the internet and the low interest rates prevailing since the financial downturn pushing investors to seek higher returns. It is now a well-established part of the funding environment, with several large companies dominating the sector but a host of smaller companies joining all the time to take advantage of particular niches. This article gives a very brief look at what’s involved in raising funds through crowdfunding, some of the key features of crowdfunding platforms and a few examples of some of the key players. Firstly, one of the most important features of crowdfunding organisations is the type of funding they offer. This falls into three groups – debt, equity and rewards. Debt funding will have a range of payback terms and interest rates depending on the perceived creditworthiness of the investment.  Rewards-based funding is typically aimed at B2C companies with products or services of interest to investors which are provided instead of a financial return – cultural events, games, restaurants etc. Second different platforms will offer one of two models of funding – all or nothing or ‘keep it all’. In the former, the entrepreneur needs to raise all funds required – if the goal isn’t reach, no funds are collected.  By contrast, the keep-it-all model, whatever is collected is handed over to the entrepreneur and its then up to him or her to either develop the business with what’s been raised or had funds collected back to the investors. Thirdly, lending criteria vary from one crowdfunder to another. Funding Circle for example,...

Corbynomics and the accountancy of quantitative easing

I learnt about double entry bookkeeping on the first day of my basic accountancy training thirty something years ago. Debits on the left, credits on the right. Everything has to balance. Always. So trying to get my head around quantitative easing. The Bank of England creates money electronically and uses it to buy bonds from the banks. Debit cash, credit, er… Googling ‘quantitative easing double entry’ throws up a range of views on this subject. Almost top of the list was an article from Richard Murphy (whose name seemed vaguely familiar), a chartered accountant of my own age and background and seemingly happy to take the single entry route. Cash is created ex nihilo, the Bank of England uses it to buys back gilts, which it then cancels, thus reducing government debt from 65% of GDP to 41%. Hey presto. This has all become much more important following Jeremy Corbyn’s election as labour leader. One of his key policies is extending QE to fund investment in infrastructure. (Ah, that’s where I’d come across Richard Murphy – Page 46 of today’s Guardian – “Meet the Brains behind Corbynomics”.) Richard proposes that the QE process can be restarted for this purpose, but once the tap is turned on what’s to stop the printing presses continuing to roll, Weimar style? The article quotes Professor Tony Yates at Birmingham. “Once they’ve crossed the Rubicon of doing it, what would stop the political clamour for using QE to pay for something else? That’s how Zimbabwe ended up funding all its expenditure by printing money” Once the genie is out of the bottle, the twin...

Productivity

In July, the government announced its Plan for Productivity – for GDP per head to increase productivity has to improve and the government’s plan envisages tackling this through a combination of long term investment and making the economy more dynamic. But businesses too need to improve their productivity and a large part of it will be through increased automation. And finance departments will not be exempt. Major changes in the world of accounting are inevitable – a recent study in the Economist gave the probability of computerisation leading to financial processing job losses in the next two decades at 94%. So what would the automation of an organisation’s finance function involve? The day to day work of most finance employees involves a mixture of matching, posting, authorisation and the triggering of actions – making payments, raising invoices etc. Much of this is repetitive and not generally life-enhancing.  By tagging transactions at the start a lot of re-keying and checking of data can be avoided. This is already common in larger companies, particularly for online businesses. But it should be possible for much smaller organisations. Take a typical manufacturer. In the past, to top up a supply of widgets, the production department would raise a requisition and Accounts would turn this into a purchase order. When the goods arrived, the goods inwards team would approve the goods received note and this would go to accounts payable to be matched with the supplier’s invoice and the purchase order before payment could be made. Now, relatively inexpensive MRP software, such as that from 123 Insight, can automate the requisition and matching processes...