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November 21, 2005


Peter Harkins

Got an author or publisher? There are at least 8 different books on Amazon with titles like that.


About accrual accounting: I'm not a finance guy, but I did take an accounting course and I have to say that accrual accounting makes sense. The simple example is this:

Say you own a business that makes widgets, and you have manager A who works one month, and manager B who works the next. If you receive $1000 in the first month in advance for widgets that are produced and delivered in the second month, then which manager deserves credit for the $1000? Manager B, obviously, because he or she did all the work and delivered the widgets. That's why revenue recognition depends on delivery. You can easily concoct an example the other way around, with widgets delivered on credit.

If you own the company, you don't care which month/year/day things are recognized in, but owners are not always the ones managing the company. If managers receive bonuses based on profit, you need to make sure that profit is actually earned by the manager.

Income is different from cash only in timing, so it is not totally divorced from reality. So the tax issue eventually evens out as well, but don't get me started on the odd tax accounting rules.


I'm still new to the "bitness man" side of things, but...

Basically, labor will always be your most expensive overhead (until you move into that way cool 20,000 sq. ft. studio). Most people don't realize that the company doesn't pay out just their take home pay. For a rule of thumb- double your salary and that's how much the company has to pay out to employ you.

The problem with ANY software shop or creative service business- you don't make widgets. It's one of the frustrations I face everyday. There's not a cut and dried cost to associate with anything. The closest thing you can approximate to widgets is milestones. They at least define a tangible result to be accomplished within a short enough time span that you can reliably estimate your cost. Personally, I prefer to treat a milestone as a shipping product for the whole team anyway. It gives everyone a short term goal and since of accomplishment. Factor your profit into your milestones and let royalties be a happy surprise. A red flag should go up if you start planning on potential royalties.

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Jamie's Bragging Rights

  • Spider-Man 2
    The best superhero games of all time Game Informer
    Top five games of all time Yahtzee Croshaw
    Top five superhero games of all time MSNBC
    Top 100 PS2 games of all time Official Playstation 2 Magazine
    1001 Games You Must Play Before You Die Nomination for Excellence in Gameplay Engineering Academy of Interactive Arts & Sciences
  • Schizoid
    Penny Arcade PAX 10 Award
    Nominated for XBLA Best Original Game
    Nominated for XBLA Best Co-Op Game