I am a Chartered Accountant by trade, now referred to as a Certified Professional Accountant, since the Institutes in Canada changed the name of the professional designation. I have been a CA since 1998 - so 20 years now. It took me 4 years to earn my designation, so that I spent a total of 21 years in public accounting before I left in 2015 to start my own business. During that time I helped well in excess of 500 people with their business and tax affairs - maybe more than that. It's hard to count because I worked for four firms during my career, and I am sure that I helped over 100 clients in each one. When I say 100 clients, I mean families and corporate groups. I don't mean individuals filing their tax return every year. If I include them, then I have easily assisted thousands of people over my career. The training to qualify as a CA is extremely rigorous. While most people outside the accounting world are vaguely familiar with this, few actually know what it entails.
The main takeaway from the training to become a CA, and the one thing that is critical to passing the professional exams is the ability to identify business and accounting issues that are not obvious, from a fact pattern. In our exams we were given business cases. These cases were large fact patterns, often containing a lot of numbers in the form of financial statements, that hinted at some business issues that jumped out, but usually these were worth the least numbers of marks. The critical issues that the examiners were looking for - the ones crucial to pass the questions, often lay hidden in the background, and it took analysis and a step back, after addressing the most obvious issues, to be able to recognize the critical, less obvious issues.
In order to be able to do this successfully, the prospective CA must learn and develop good analytical skills. This is where the public's perception of what an accountant does falls down a hole. A good CA will be able to look at a set of financial statements for a restaurant, for example, one that shows a profit in the current year, and be able to tell if the bartender might be stealing, or whether the restaurant could face bankruptcy in five years. How you ask? By looking at the patterns formed by the numbers and the relationships between those patterns. For example, bartender theft will show up in many ways, but one of them is that alcohol sales are relatively flat, while the cost of alcohol sold is rising, when the accountant knows that prices didn't change. The second example, a restaurant going broke can be forecast if cash flows are low to negative, even though profits are high, or if the cost of food and wages is more than two thirds of revenue, as this is a fairly standard, well documented benchmark of what makes a restaurant profitable over the longer term.
So, I am able to analyze patterns, and I can tell when a pattern is natural, and when it has been "massaged", or otherwise manipulated. Natural patterns have a certain element of randomness to them, whereas massaged or manipulated patterns are too perfect to be plausible. In the case of my dealings with E-bay over the past several years, I can see from my sales pattern, that it is not natural: it shows growth that is too steady and rarely fluctuates and the number of new customers every month is almost exactly the same. Even a successful business will have ups and downs, and these ups and downs will occur at different times and to different extents. As I will show you when I discuss it in greater detail, although an E-bay sales pattern for a seller like me does exhibit ups and downs, they are almost always identical, both in extent and in their timing, to the point that they become predictable. A business should not be able to predict a drop in sales unless it is related to a clearly known and understood factor, like people not shopping on Remembrance Day in Canada, or Memorial Day in the US. Once you as a seller, can accurately predict a drop in sales, when there is no clear reason why it should drop, then you know your sales pattern is being manipulated artificially.
Before I became a CA, my degree in university, which I earned with first class honours included a minor in economics. I never did take all the upper level economics courses, but I did complete both the introductory and intermediate courses in both macroeconomics and microeconomics. In the microeconomics courses we learned about different market models and how to recognize the behavior of the participants in each model. Two of these market models were pure monopoly and monopolistic competition. Monopolistic competition is really just a fancy way of describing a free market where businesses differentiate their products and services, either by advertising them effectively, offering different levels of quality or different levels of service. Monopoly, is a market model in which a single firm dominates the market. Monopolies are usually characterized by high prices, a restriction of supply in the market to keep the price elevated, and a lack of innovation from the customer's perspective. As we will see E-bay fits the profile of a monopolist pretty much to a "T".
So, in summary, I feel that I am well qualified to comment on what E-bay does and why it is bad for both buyers and sellers because of:
1. My experience selling on the platform over an eight year period.
2. My educational background, which has given me the basic tools to analyze E-bay's behavior within the broader context of the market for online selling space, and
3. My training as a CA, CPA, which allows me to meaningfully identify where I believe that E-bay is manipulating the prices realized in its auctions and the sales made by its sellers. My training also allows me to break down their pricing structure for their services and look beyond the legal form in which they structure their business to show instead the true economic substance of what they offer sellers. It is this analysis that will lay bare the fact that nothing E-bay does, or offers either buyers or sellers is truly "free".
I am in the midst of getting my website up and running so I may not be able to post again for a few more weeks, but will continue to do so where I can.
A quick disclaimer: the conclusions expressed in my blog are my informed OPINION, as someone who has dealt with E-bay on a daily basis for the past 3 years of the 10 years that I have been dealing with them. The question of their ultimate guilt is up to the governments to decide and so what I say here should be interpreted in that light. I am also not attempting to harm the E-bay brand. I am simply attempting to relay my experience, find some common ground with other sellers and hopefully set in motion a chain of events that will result in the leadership team at E-bay being held accountable.
The main takeaway from the training to become a CA, and the one thing that is critical to passing the professional exams is the ability to identify business and accounting issues that are not obvious, from a fact pattern. In our exams we were given business cases. These cases were large fact patterns, often containing a lot of numbers in the form of financial statements, that hinted at some business issues that jumped out, but usually these were worth the least numbers of marks. The critical issues that the examiners were looking for - the ones crucial to pass the questions, often lay hidden in the background, and it took analysis and a step back, after addressing the most obvious issues, to be able to recognize the critical, less obvious issues.
In order to be able to do this successfully, the prospective CA must learn and develop good analytical skills. This is where the public's perception of what an accountant does falls down a hole. A good CA will be able to look at a set of financial statements for a restaurant, for example, one that shows a profit in the current year, and be able to tell if the bartender might be stealing, or whether the restaurant could face bankruptcy in five years. How you ask? By looking at the patterns formed by the numbers and the relationships between those patterns. For example, bartender theft will show up in many ways, but one of them is that alcohol sales are relatively flat, while the cost of alcohol sold is rising, when the accountant knows that prices didn't change. The second example, a restaurant going broke can be forecast if cash flows are low to negative, even though profits are high, or if the cost of food and wages is more than two thirds of revenue, as this is a fairly standard, well documented benchmark of what makes a restaurant profitable over the longer term.
So, I am able to analyze patterns, and I can tell when a pattern is natural, and when it has been "massaged", or otherwise manipulated. Natural patterns have a certain element of randomness to them, whereas massaged or manipulated patterns are too perfect to be plausible. In the case of my dealings with E-bay over the past several years, I can see from my sales pattern, that it is not natural: it shows growth that is too steady and rarely fluctuates and the number of new customers every month is almost exactly the same. Even a successful business will have ups and downs, and these ups and downs will occur at different times and to different extents. As I will show you when I discuss it in greater detail, although an E-bay sales pattern for a seller like me does exhibit ups and downs, they are almost always identical, both in extent and in their timing, to the point that they become predictable. A business should not be able to predict a drop in sales unless it is related to a clearly known and understood factor, like people not shopping on Remembrance Day in Canada, or Memorial Day in the US. Once you as a seller, can accurately predict a drop in sales, when there is no clear reason why it should drop, then you know your sales pattern is being manipulated artificially.
Before I became a CA, my degree in university, which I earned with first class honours included a minor in economics. I never did take all the upper level economics courses, but I did complete both the introductory and intermediate courses in both macroeconomics and microeconomics. In the microeconomics courses we learned about different market models and how to recognize the behavior of the participants in each model. Two of these market models were pure monopoly and monopolistic competition. Monopolistic competition is really just a fancy way of describing a free market where businesses differentiate their products and services, either by advertising them effectively, offering different levels of quality or different levels of service. Monopoly, is a market model in which a single firm dominates the market. Monopolies are usually characterized by high prices, a restriction of supply in the market to keep the price elevated, and a lack of innovation from the customer's perspective. As we will see E-bay fits the profile of a monopolist pretty much to a "T".
So, in summary, I feel that I am well qualified to comment on what E-bay does and why it is bad for both buyers and sellers because of:
1. My experience selling on the platform over an eight year period.
2. My educational background, which has given me the basic tools to analyze E-bay's behavior within the broader context of the market for online selling space, and
3. My training as a CA, CPA, which allows me to meaningfully identify where I believe that E-bay is manipulating the prices realized in its auctions and the sales made by its sellers. My training also allows me to break down their pricing structure for their services and look beyond the legal form in which they structure their business to show instead the true economic substance of what they offer sellers. It is this analysis that will lay bare the fact that nothing E-bay does, or offers either buyers or sellers is truly "free".
I am in the midst of getting my website up and running so I may not be able to post again for a few more weeks, but will continue to do so where I can.
A quick disclaimer: the conclusions expressed in my blog are my informed OPINION, as someone who has dealt with E-bay on a daily basis for the past 3 years of the 10 years that I have been dealing with them. The question of their ultimate guilt is up to the governments to decide and so what I say here should be interpreted in that light. I am also not attempting to harm the E-bay brand. I am simply attempting to relay my experience, find some common ground with other sellers and hopefully set in motion a chain of events that will result in the leadership team at E-bay being held accountable.
If E-bay is cooking their books and effecting your business dose that pose a risk to you when you file your taxes? If your data is different to E-bay`s are you left holding the bag if CRA finds the difference in the numbers??
ReplyDeleteHi Randy.
DeleteNo, E-bay isn't cooking their books. I will do a detailed post on this, but what they are doing is using secret algorithms in their search engines to manipulate what buyers see on the site, and therefore what sellers have a chance to sell.
I actually keep separate records of my sales for tax reporting because you are right, I am ultimately responsible for what I report to CRA. But I am fine in that regard.