Maker Club, AI, and Skills My Kids Will Need

file-5My nine year old daughter asked me what car she will use when she starts driving. It occurred to me that by the time she reaches driving age we will probably have autonomous vehicles. She may never have to learn to drive. Likewise, there are a bunch of other jobs that we take for granted today that artificial intelligence may do in the future.

A lot of the skills people are learning today will be obsolete as technology improves further. Programming will become even more intuitive, robots will be more ubiquitous, and artificial intelligence will absorb more of the menial tasks that people do today.

My wife and I are doing our best to encourage her to learn STEM related skills including encouraging math and science along with having her participate in the local maker club where she is learning basic computer programming. What’s interesting is that the most valuable thing she’s learning at the maker club isn’t programming or basic fabrication. It’s teamwork, leadership, and building consensus.

My daughter and her friends had to decide together what to build, who would be responsible for what, and how it would all come together. It’s not so easy to get a bunch of eight and nine year old girls to agree on what amounts to a group arts and crafts project combined with servo motors, LEDs, and sensors. But when I came back 90 minutes later, they had worked out the project conceptually, applied some basic geometry, and wrote simple programming instructions. When they moved a hand near a proximity sensor, a rain cloud appeared next to a sun and a worm wiggled. In all, it was pretty impressive.

Technology is always evolving and it’s important to be knowledgeable in the latest advances. But the ability to create team cohesion and keep everyone motivated is a skill that won’t be replaced by computers. It’s a skill I look for in colleagues, and one that I’m sure my clients value in me.

My assumptions are based on my experience… What about yours?

Every once in a while I read something that makes me rethink my assumptions. This article in today’s Washington Post did just that. In particular, the quote that read,

The traditional grocers are going to continue to be three miles from people’s houses as opposed to the more regional locations like the malls,” he said. “It’s all driven by convenience.

That’s right! In New Jersey, there are malls three miles from EVERYONE’s house. But that’s not the case everywhere. It is a nice reminder that externalizing your experience to the rest of the population isn’t necessarily accurate.

Millennials killing the ‘burbs? I blame Gen X.

pexels-photo-243722There are plenty of discussions about where and how millennials will choose to live (cities vs the suburbs) what types of jobs they will want (flexible vs permanent.) Just this week Business Insider published a 5 part piece on it. The discussion rages on and on.

Consider a couple of facts when discussing projections like these: The oldest millennials are 37, and the youngest are only 17. This is a young group. The job market has been weak, there have been two major economic downturns since the eldest of this group entered the workforce, and baby boomers aren’t retiring. So when you combine youth and a challenging job market are we surprised that their lifestyles reflect these realities?

Allow me to propose an alternate theory. Could the challenges that the suburbs are currently experiencing be due to the small size of Generation X? As a relatively small cohort sandwiched between boomers and millennials with 75 million people each, Generation X accounts for a paltry 66 million people. There aren’t enough people in their prime earning years right now to make up for the voracious consumption and economic driver that was the boomers. There is no way Generation X can generate enough economic activity to maintain the pace of consumption that the boomers set between 1980 and today.

Will millennials have different habits than previous generations? Probably. They are clearly looking for experiences as much as they are looking for possessions. But the sheer number of millennials that are still a decade or more away from their prime earning years makes predictions about their habits almost impossible.

Millennials will become major economic drivers in the economy over the next decade. Research shows that they want job stability, they aren’t mobile, and they want to have children. These all sound like things that the suburbs are well suited to providing.

So let’s not write the obituary for the suburbs just yet.

FASB 842 – Leases

accountant-accounting-adviser-advisor-159804On February 25, 2016 the Financial Accounting Standards Board released Accounting Standards Update 842 dealing with lease accounting. The update intends “to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information about leasing arrangements.”

ASU 842 will require leases to be recognized on the balance sheet, a significant shift from the previous accounting treatment. The change applies to all leases for equipment, real estate, and other leasable assets.

These changes impact most companies headquartered in the United States that follow General Accepted Accounting Principles (GAAP) standards. The effective date for implementing these changes is January 2019 to provide ample time to implement these new regulations but companies are welcome to adopt these new standards sooner, if they so choose.

Going forward, the term Capital lease will be retired. All leases will now either be categorized as “Finance” or “Operating.” Finance leases are effectively structures that transfer ownership at the end of the term for a nominal fee, provide an option to purchase that the lessee intends to exercise, or a lease term that is the length of the useful life of the asset. All other leases are classified as Operating Leases.

FASB continues to recognize two types of leases and the accounting treatment that should be applied to each. The broad considerations of the changes are:

• Any asset that is leased with a term longer than 12 months must be recognized on the balance sheet as a “Right to Use” asset regardless of whether it is a finance or operating lease.
• Finance leases will require that the lessee bifurcate the interest payment associated from the deprecation of the asset over the term of the lease and any options.
• Operating Leases can be shown as a straight line expense over the term of the lease by recording the value of the right to use asset along with the corresponding liability on a present value basis.
• Most accounting rules will not change for Lessors, although some terminology may be redefined to align with Lessee regulations.

When calculating lease asset and liability values all costs directly associated with the underlying asset will be included. For example, charges such real estate taxes will be considered as part of the value of the lease, but janitorial cleaning services would be excluded and considered a separate expense. The above notwithstanding, in a nod to expediency, lessees can choose not to separate these components if that policy is applied to the entire asset class.

Issues for the accounting department and the CFO to consider as part of the new standards:

• How accurate are the current lease records?
• Can the direct lease costs identified and quantified? These may need to be recognized differently than the lease obligation itself.
• Where is the company’s data being stored currently? Is the information easily accessible?
• Who is managing the database of information and maintaining the integrity of the data?
• What department will be responsible for managing lease costs and reporting going forward? Accounting? Procurement? A hybrid shared services department?
• Do we have the necessary data to explain the impact of these changes to investors?

While any lease liabilities will be included on the balance sheet, the corresponding assets will also be placed on the balance sheet. This won’t impact the overall net worth of a company. This may impact some companies capital structures as debt to equity ratios will be impacted when operating leases get added to the balance sheet. Highly leveraged companies that were already close to their ratio thresholds will have to discuss these impacts with their lenders.

I recommend huddling with your accountant and real estate adviser to understand exactly how these changes will impact your business and what steps are necessary to fully comply.