Finance for Geeks

Here are a few books I recommend and have read:<p>Finance and accounting for non-financial managers. A great intro for beginners.<p><a href="http://www.amazon.com/Essentials-Finance-Accounting-Nonfinancial-Managers/dp/0814416241/ref=sr_1_8?ie=UTF8&#38;qid=1324278041&#38;sr=8-8" rel="nofollow">http://www.amazon.com/Essentials-Finance-Accounting-Nonfinan...</a><p>A first year accounting textbook like:<p><a href="http://www.amazon.com/Accounting-Principles-Jerry-J-Weygandt/dp/0471980196" rel="nofollow">http://www.amazon.com/Accounting-Principles-Jerry-J-Weygandt...</a><p>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.<p>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.<p>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.<p>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.

I found this to be a very useful, <i>extremely basic</i> (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).<p>Of course some fundamental ideas (debits vs credits) are complicated enough to explain that most who try are just confused and confuse the reader.<p>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.

Also highly recommended: Accounting for Computer Scientists<p><a href="http://martin.kleppmann.com/2011/03/07/accounting-for-computer-scientists.html" rel="nofollow">http://martin.kleppmann.com/2011/03/07/accounting-for-comput...</a> <a href="http://news.ycombinator.com/item?id=2298471" rel="nofollow">http://news.ycombinator.com/item?id=2298471</a><p>After reading that article it finally all made sense to me.

From the article:<p><i>&#62; 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><p>I get the impression that the author is somewhat stuck into the common thinking of software only as a <i>product</i>. The statement above is true if you try to sell licenses. However, there are lots of more clever Open Source business models out there.<p>For instance, you could treat software as an <i>infrastructure</i> like a street or a computer network. You get paid on improving parts of it and/or providing services around it.<p>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.

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.

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.<p>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.<p>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.

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

Surely what the world needs is finance for _Greeks_ no?

Ah. <i>Personal</i> finance. I thought this was finance the industry.

No, No, No, No, No.<p>Assets = Liabilities + Share holder's equity<p>That is true from an accounting standpoint but does not tell you what a business is worth.<p>Here are the 2 easiest approaches for "non finance people"<p>1) Value at a future date of selling the business divided by perceived risk.<p>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.<p>* 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.<p>2) Use an NPV model to determine the value of your business. This is not a good way to go for VC funding