Revenue By Any Other Name Is Still Revenue

There was a short rant in the National Post on Monday that I found interesting. It makes a very good point, that whenever the government hands out money it distorts the market. There are of course a great deal of issues with all such programs -- political, economic and philosophical -- which inspire a lot of heated debate. Rather than argue the fine points of all these programs, which usually translate into tax credits or similar corporate incentives, let's look at it from the perspective of a typical business.

First, we have to deal with an ethical dilemma: is it right to apply for and receive funds from the government? In most cases, the applying company has nothing to do with getting the government program created; it does happen (think GM) but those tend to be the exception, not the rule. For most of us out in the real world trying to make our businesses successful, there is no need to feel guilty, or at least no more than if a store advertises a sale -- where you benefit from making a purchase at large discount -- should you feel guilty about the loss accruing to the store's owners.

Therefore, ethics aside, what is a business owner to do? The program and the money are there, and whether or not you choose to apply for funds (assuming your business qualifies and the application is honestly made), the program will continue to exist and the funds will be disbursed. If not to you, then some other more or less deserving business, and quite often your competitors.

If you have ever worked in company and have been within sight of the finance department's activities, you will know that these government programs are on every CFO's radar. I have even been roped into helping write some of these program applications in more than one company. When I was younger I was somewhat bothered by what I was doing even though it was all perfectly legal and above board: I was never asked to tell any untruths. Later on, having gained more business maturity, I stopped worrying about it. I did so for good reason.

When we think of company revenue it is natural to think of sales; that is, money from paying customers. This is too narrow a perspective. What matters to a company's financial health, and therefore the shareholders' interest, is more money coming in than going out (net positive cash flow). There are no asterisks put against a dollar residing in a company's bank account. No matter where that dollar came from, it is an equivalent asset. It is certainly true that the dollar can have an attendant obligation, such as rolling out a product based on R & D subsidized by a grant, but that is true of every incoming dollar. For example, dollars from customers obligates the company to deliver and support product, and dollars from investors obligate the company to deliver on specified financial and business objectives. These sources of dollars may not be called revenue, but the bank balance increases identically, dollar for dollar.

A company is obliged to acquire every profitable bit of revenue it can if it is to fulfill the prime objective of any private corporation: to deliver the best possible return to shareholders. In other words, a CFO who declines to apply for legitimate government funds on the basis of ethics or other personal beliefs deserves to be fired. I don't remember seeing any CFO fired for this reason, and that's because they always made the right decision.

The proper way to deal with government money (that's our money) going to corporations is to take it up with the government, not private businesses. If it's bad policy -- and it very often is -- tell the government to stop, through the ballot box if necessary.