And when the haggling finishes, the two parties shake on the deal. Frighteningly, there are no end of implied terms around the transaction, from basic ones like the supplier having the goods in question through to the fact that (in Britain anyway) the supposition is that both parties are talking British Pounds and again in most B2B conversations, if the goods attract VAT, then that’s on top of the agreed price.

Even I (an accountant – sorry) nearly came a cropper – I was buying a domain name from a Dutchman. There was much toing and froing on the price – after all every domain by definition is unique and benchmark pricing is not obvious. But it wasn’t until late in the conversation and close to paws touching, that it occurred to me I was bidding him euros and he was expecting the number in question in sterling. It was resolved – at a time when there were more euros to the Pound than today – so could have been disastrously expensive.

But it is worse for accountants. What is the ‘bottom line’ for a business? The phrase ‘bottom line’ in business is an alternative to ‘profit’.

A traditional Profit & Loss Account might look something like:

Sales (aka Turnover, Revenues, Income) £x
Cost of goods sold (£x)
Gross margin (aka Gross Profit, Margin) £x
Expenses (aka Overheads, Costs) (£x)
Net Profit (aka EBITDA, Net Margin, PBIT) £x A
Less: depreciation (aka Amortisation) £x
interest paid £x (£x)
Net profit before tax (EBT, PBT) £x B
Tax (£x)
Profit after tax (aka Retained Earnings, Income) (£x) C

So let me ask you, what’s the bottom line, here? Is it at (A) where you have factored in all your costs , or (B) where you add the cost of using money (Interest) and the cost of using equipment (depreciation), or is (C) after the government – over which you have no control – has taken its 0.454kg of flesh?

I think bragging rights go for the largest number – so if someone says ‘I’m making a million a year’, it is probably somewhere around (A) that they’re doing their sums. But if you are buying the business then you probably need to be a (C) because that’s the only piece that’ll be yours at the end of the day?

The problem is it is not defined. But then nor are many of the terms accountants use. If you look at all the aliases I’ve listed – and even then they are but a sample -you can see confusions abound.

I was once engaged to help a British Millionaire buy a marina in the South of France. My French is poor but it was clear from the first moment I looked at the paperwork that the vendors quoted ‘Income’ for the business was the total sales, but had been heard by the buyer to be the profit (wherever that fell on my P&L above – in his mind) – the deal didn’t happen. Worse, it was apparently my fault!

I don’t want a rigid accounting code in this country as they do for instance in Germany, but I think as an accountant I should remind everyone relying on a ‘bottom line’ to be warned by that useful piece of street law – ‘buyer beware’.

The traditional SWOT or TOWS (I prefer the latter) analysis is generally represented in a Boston box; you know the 4 x 4 matrix variety:

ABC Enterprises TOWS

We can find this representation in text books, most business cases and plans, adorning strategy presentations and so on, but what does it mean? Is it really an analysis? And that’s the point; unless you have written it you may not really know what it means. And even if you do, where is the analysis? I think there is a simple way to improve it.

I use “SWOT? So What?”, where the “So What?” forces the consideration of “So, what does this mean for the business?” i.e. analysis. It does exactly what it says on the tin.

A slight change to the layout reveals all.

ABC Enterprises TOWS

My “SWOT? So What?” approach encourages us to go beyond just the headline and really explore what it means for the business. Not only does this give better and more beneficial information, but it tends improve presentations too, forming the basis for discussion rather than just being the cue for an explanation.

Next time you are in need of a TOWS/SWOT analysis…why not give it a try.