The final chapter of the Hobbit, the Battle of the Five Armies, hits theaters today. This is a classic battle of good verse evil, but did it really have to be? We think if you look deeper, you will realize that a good accountant/financial advisor could have solved a lot of the woes that plagued Middle Earth:
1) Lack of proper investment strategy. The Dwarves had a tremendous level of wealth stocked away in the Lonely Mountain. Just leaving it lying in a treasure room in was not really a prudent way of safeguarding their assets and ensuring long-term financial growth. King Thrain and his son Thorin Oakenshield should have considered working with a financial advisor to establish an investment policy that looked at short-term and long-term needs, risk tolerance, diversification, growth versus fixed returns, etc. If Thrain or Thorin would have properly established an investment policy, diversified their holdings in other areas of Middle Earth (say low-income housing units for the Orcs, a chain of pubs in the Shire, and maybe even a tree pruning venture for the Ents) they would have been: less susceptible to theft by the dragon Smaug; able to foster economic growth throughout Middle Earth; and they would have had a proper hedge against the loss of their entire portfolio.
2) No key man life insurance. Thorin and friends made a large investment in Gandalf and, to a lesser degree, their thief, Bilbo. If these two individuals were to die on their campaign to regain the treasure under the mountain, the Dwarves did not have a contingency plan. Insuring key members of the team could be helpful in keeping operations running should a key contributor have a heart attack or fall into a bottomless abyss along with a Balrog.
3) Lack of a disaster recovery plan. When the Dwarves built their kingdom in the Lonely Mountain, they established all of their operations, systems, and communication systems within this site. They never established a plan that if something were to happen to their primary site, operations could have continued uninterrupted at a back-up site. Hey, you never know when a dragon may swoop down and throw several tons of scales and brimstone into your operations. Be prepared. Make sure you have back-ups of your important data, access to key programs, a space to operate, and a vehicle to effectively communicate with your staff and clients. Lack of a plan can leave you out in the cold, wandering the countryside without the resources necessary to operate.
4) Collaboration versus warfare. Why must it always be about fighting? The Dwarves had a significant level of resources. Peaceful collaborative agreements could have been created with the elves, humans, orcs, and the goblins, whereby open trade agreements could have been established, community investment and infrastructure could have been put in place, and the five armies could have been five strategic partners instead. We constantly advise our clients to forge strategic alliances with other companies to be able to offer a broader base of services to their customers and clients.
5) Stay relevant, don’t isolate your business. The elves were content to look the other way to the changes that were occurring in Middle Earth. They were set in their traditional values and their traditional way of thinking. Any accountant who is also a business advisor will tell you that you need to think strategically, constantly looking to thee outside for new ideas, products, markets … because if you are not focused on growth, product development and improvement, then someone else will step in and take your land, your assets, your customers, or whatever else you leave on the table. In business you need to keep looking forward.
So as you’re watching Bilbo and Company as they try to regain the Arkenstone, defeat Smaug and Sauron’s armies, and restore good to Middle Earth, remember that life in Middle Earth would have been so much nicer if there was an Accountant instead of a Hobbit.
Kenneth R. Cerini, CPA, CFP, FABFA
Ken is the Managing Partner of Cerini & Associates, LLP and is the executive responsible for the administration of our not-for-profit and educational provider practice groups. In addition to his extensive audit experience, Ken has been directly involved in providing consulting services for nonprofits and educational facilities of all sizes throughout New York State in such areas as cost reporting, financial analysis, Medicaid compliance, government audit representation, rate maximization, board training, budgeting and forecasting, and more.