Tuesday, March 08, 2005

Corporate Blogging and Financial Treatment

Blogs are proving to be an excellent communications tool. By forging one-to-one relationships with customers, organizations have discovered a new medium to retain the customers. Organizational theories have confirmed that retention is more financially feasible than exploring newer ones. This is claim is backed by research and known to all executives.

Uusing a blog often signifies the redefinition of corporate strategies that are targeted at the customers. As such, some changes in financial statements are quite obvious. If a corporation does decide to use a blog to further its goals, should such proceedings be recorded as an expense (recorded in an income statement, or an asset (recorded in the balance sheet)?

Clearly, blogs provide some tangible as well as intangible benefits. Most tangible benefits (such as profit) are long term, while intangible benefits (goodwill, customer satisfaction, retention, valuable feedback for pennies) could usually be seen in shorter-terms. Note that the defintion of long and short term varies. For this post, readers could consider a period longer than a year as long term, and anything less as a short term. If these benefits could be realized, recording blogs as an investment in an asset seems obvious.

On the other hand, blogs incur expense. These expenses are usually rather insignificant - even less than the petty cash expenses in some cases.

To have a better idea of what I mean, please examine the following treatments. The first image is where the blog is recorded as an expense. The second image shows treatment as an asset.

It is clear that blogging should be treated, if at all, as an investment in an asset. It is an investment that paysoff in the long run. Whether it should be classified under current or fixed assets depends on how quick the blogging mechanism is at generating cash for the organization. Managers can still use conventional risk evaluation and feasibility techniques such as NPV, IRR or Payback Period to determine the relationship between the cost and the eventual ROI. In the case of blogs, the initial outlay is quite insignificant, unless equipment such as server machines and a custom-built blog software are purchased.

Note: If a business blog is setup by a sole propreitor (or a small partnership), it could also be recorded on the Statement of Owner's Equity - rather than an income statement or a balancesheet. This does not seem to be practical, however, in the case of corporations.

Whether blogging should be recorded as an expense or as an investment is largely a matter of choice for organizations. There is no fixed rule. Factors such as the organizational committment to technology, financial executives' knowledge of IT, IT department's willingness to convey the potential blogging benefits are just some of the many that may lead to the adoption of one method over the other. However, a blog is surely an investment. As such, the responsibility lies with the CIO and the IT department to proof this. Proving this would also lead to the justification for the IT department's existence and encourage more resource allocations to the department.

I would appreciate comments from all the readers about this post. Please do forward your suggestions, criticism (negative criticism is more than welcome), and any errors in the templates of the financial statements shown. Thank you.

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