Shark Tank, one of the most popular business-related shows on television, is loaded with accounting standard setting topics.
Episodes actually cover a gamut of them: financial statement presentation, revenue recognition, inventory disclosures, equity investments, business combinations -- and a slew of other financial reporting issues like valuations.
In fact, the show appears to showcase how accounting really works, how deals are done, how companies are valued. It’s like watching an accounting standard developed by the Financial Accounting Standards Board grow legs and walk.
A Typical Episode is Like a Boardroom.
In a typical episode, an innovator or entrepreneur of a business or product requests a lump sum of money (eg. $50k), from one of four investors called “Sharks”, for a percentage amount of equity ownership in the business (eg. 10 %).
Current reruns, which can be viewed on CNBC, mostly feature four “Shark” investors, out of the following: Robert Herjavec, Kevin O’Leary (nicknamed Mr. Wonderful), Daymond John, Lori Greiner, Barbara Corcoran and Mark Cuban.
If a “Shark” likes what he or she is hearing about a business or product, viewers get an inside glimpse about how negotiations take place and deals get made. The entrepreneur or business owner gets to make a pitch, not only about the business, but the product, so even if they don’t get an investment -- it’s free advertising globally.
Plight of the Bees.
Case in point -- the episode with a bee business called “Beethinking”. The entrepreneur, Matt Reed, started out with an education about the honeybee. We learned that honey bees are responsible for a third of our potential food supply, and that without them the food we enjoy wouldn’t exist.
In 2006, beekeepers began to notice huge losses of the honeybee population -- diagnosed as “Colony Collapse Disorder” caused by a combination of pesticides, habitat loss, stress, among other things, Reed explained to the “Sharks”.
Reed then also explained that his business makes bee hives. He then asked for $400,000 from the “Sharks” in exchange for 10% of the business.
The show then gave a live lesson on how to look at financial statements:
Lori: what are your sales?
Matt: to date since we started selling in about 2009 -- it’s $1.9 million.
Robert: what about the last 12 months?
Matt: this year, 2014, we’ve done $775,000.
Robert: and last year?
Matt: last year was about $560,000.
Mr. Wonderful: are you making any money off the $775,000?
Matt: so far profit this year is around $120,000.
Mark: who are your customers -- is it someone buying for kids and it’s just fun in the back yard?
Matt: most people get into it to help honey bees (he reiterates the bee crisis).
Mark: how much per box?
Matt: this (pointing to one) is about $360.
Daymond: how much does that cost you to make?
Matt: this hive cost us $150.
Daymond: and you sell it for $300?
Matt: that’s including shipping and packaging.
Ultimately it’s about Bottom Line Profit.
Other questions “Sharks” asked included his salary, how many goods are purchased, how often purchases are repeated, and so forth.
Ultimately, Matt wasn’t successful in getting an investment because the “Sharks” didn’t see how they would be able to quickly get a return on their investment.
As Mr. Wonderful explained it, “you’re telling me it’s worth $400k for 10% -- that’s a $4 million valuation on your business and it really doesn’t make any money yet.”
Continue the discussion on Bloomberg BNA Accounting LinkedIn page.
Notify me when updates are available (No standing order will be created).
Put me on standing order
Notify me when new releases are available (no standing order will be created)