Accountants: Helping Build a “Maker’s Economy”

Eli R. Khazzam | September 18, 2015 |

Available Languages: English | Russian

The seminal moment for most inventors is when they recognize that they have an idea—they see a need in the marketplace and envision a product that can fill it. But not long after this moment comes to pass, many more will be required to ensure that the inventor can transform his/her idea into a viable, sustainable business.

There is a growing phenomenon today known as the “Maker’s Economy.” It’s the re-emergence of hands-on tinkerers working in small shops, inventing products for nearly every type of industry: electronics devices, housewares, toys, medical equipment, and specialized machinery. The Maker’s Economy stands in contrast to the twenty-first century notions of big business. It’s not about globalism, mass-production, R&D laboratories, or unskilled labor, but rather specialized markets, small workshops, and most importantly hi-tech craftsmanship. Accountants can play a critical role in helping thousands of businesses in the Maker’s Economy get off to a strong start by advising them on such matters as financial management, access to finance, and risk management.

Setting the Stage for Innovation: Accessible and Affordable Resources

What’s helping the Makers Economy grow is the vast accessibility of resources—money, capital, and knowledge that are easy to find for individuals and small businesses. Today, financing can be acquired through crowdfunding and a multitude of online networking channels. The Economist reported that in 2014 alone the global crowdfunding market raised $16 billion. Much of the equipment that tinkerers use is also available low-cost through suppliers that can be found all over the Internet. The knowledge to assist in the creation of such products can also be found throughout the Internet in informational websites, massive open online courses (MOOCs), as well as through online communities that put tinkerers in touch with one another. Once products are created they can be sold online to niche markets all over the world.

Innovation Requires Accounting Guidance at the Outset

While many new entrepreneurs may have some of the hottest products on the workbench they may not have had the time to consider the critical aspects of planning a business. This is where the assistance of a professional accountant can make all the difference for a start-up.

Cost Modelling—Finding the Greatest Economies of Scale

Entrepreneurs may have the technical foresight to understand how to manufacture their products, but not necessarily the aptitude to determine the most economical methods to produce them efficiently. For any start-up, a miscalculation in any one of these areas can be make or break. This is where cost-modeling comes into play. Accountants can provide useful guidance in planning for inputs in the manufacturing process as well as calculating different options for warehousing and shipping these products cost effectively. They can advise clients on setting analytical approaches—the software and best practices—to monitor these factors.

Price Modelling—Sales Strategy and Profitability

Closely tied to the development of sound cost models are price models. After thinking about the cost of production, entrepreneurs should be thinking about the profit margin they hope to attain for the products they sell. Basic questions revolving around price-per-unit should be modelled at the outset to avoid the prospect of establishing a price point that is either unsustainable with respect to profitability, or too high to be competitive in the marketplace. Accountants can devise various pricing scenarios to help entrepreneurs at the outset of the process rather than at a later date when course-correction comes too late. While price point is also a key aspect of marketing strategy (many products are priced on prestige, trends, and factors beyond the simple dynamics of supply and demand), entrepreneurs should be aware of the “true price points” in respect to the price at which they can and cannot afford to sell their products.

Investing in Equipment the Smart Way

For the start-up manufacturer, equipment represents one of the most significant investments. This includes tools, machinery, and technology required to assemble their products. Accountants are able to provide entrepreneurs with more than just amortization and depreciation schedules; they can guide them in understanding their long-term financial obligations and how to visualize them against future gains and losses. Many who go into business do not consider a strategic, big picture cost assessment: distributing costs over long periods of time over which additional investments can be incurred reasonably at certain intervals. The projected lifespan of equipment, in addition to potential stages of growth or improved manufacturing capacity, are all things that accountants can help map out over time.

The Nuts & Bolts—Planning for Tax, Payroll, and Operations

Running a small business and developing a new product are two very different undertakings. Brilliant engineers and craftspeople can easily fail in business if they do not have a basic understanding of bookkeeping, payroll, and tax planning. This is especially true if the business is incorporated and must adhere to complex legal guidelines. Accountants are often the most practical consultants to provide a big picture overview.

Risk Management—What to Prepare for and Why

Today’s marketplace is dynamic both in terms of the opportunities and risks present for start-ups. However, the very conditions that enable entrepreneurs in the Maker’s Economy to create are often also to their detriment. One such condition is regulatory complexity and compliance. Having limited knowledge of tax laws, corporate governance, and labor laws can result in hefty fines and costly government audits. Second is the capricious state of information technology. The ability to retain and protect business data is critical from the perspective of maintaining financial security. Third is the strategic importance of having access to financing. Many small businesses find themselves in the position of being cash restrained, especially in situations where sudden, even unplanned, purchases for equipment or input materials necessitates the fulfillment of purchase orders or unseen problems in production. Having access to lines of credit and a back-up plan for building capital reserves is critical to the sustainability of new businesses. In all of the above cases, accountants can provide very useful guidance to assist entrepreneurs.

Accountants Meet Makers?

Perhaps the biggest challenge that lies ahead in many societies around the world involves bringing these two worlds together: the accounting profession and the less apparent world of “makers,” many of whom operate in garages, industrial spaces, and makeshift laboratories that are often outside the business environments where accountants are firmly established. How do we bring these worlds together? The answer likely involves the Internet, on websites such as makezine, 3dprintingindustry.com, and startupowl.com. These online communities provide information and resources to makers regarding everything from equipment to suppliers and networking opportunities. Accountants should be making their voices heard in these online communities as contributors of articles and guidance. Makers can also be found at makers’ conventions like Maker Faire and Inside 3D Printing Conference and Expo. These conventions are now being held in major cities worldwide, and they are an excellent opportunity to meet makers and provide a face-to-face connection. Finally, the investment community and private funders that financially back makers should also ensure that accountants are providing guidance at nearly every step of the process.

 

Eli R. Khazzam

Senior Professional, Economic Development & Emerging Technologies.

Eli R. Khazzam is a senior professional focused on economic development & emerging technologies. Previously, Mr. Khazzam was the Editor-in-Chief of the IFAC Global Knowledge Gateway and had various roles working as a Governance Manager and Senior Technical Manager of Public Policy and Regulation at IFAC. Prior to joining IFAC, he was an Executive Director at Liquid Metrics, LLC., a research and consulting firm specializing in community-based economic development and public policy issues. See more by Eli R. Khazzam

 

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