#5 Tools of Assets & Influence — “P&L Thinking” vs “Balance Sheet Thinking”

This is the fifth in a series of 24 rants where I deconstruct the key drivers of growth and profitability for traditional service or advisory businesses. About us »

I’ll share principles and real business case studies for establishing yourself (or your team) as a Key Person of Influence in your industry, while formalising the essential business assets proven across 2000+ businesses to accelerate growth, profit and lifestyle.

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Let me explain the philosophy around profit and growth.

After interviewing thousands of business owners, I noticed that small companies constantly focus on generating leads and converting sales. Almost every conversation revolves around what an accountant would record on the Profit and Loss (P&L) — I’ve come to recognise it as “P&L Thinking”.

They talk to me about Facebook ads versus SEO lead generation. They want to know how to run webinars and whether to call back a prospect the following day or leave it a week. They want to know if I have discovered any great closing questions for locking down a warm enquiry or if I know of any LinkedIn strategies that might produce sales appointments.

They look for savings on suppliers and wonder who could do a cheaper job than their current provider. They ask me how to get cheap interns and virtual assistants and how to cut down the cost of IT or HR.

Most of the time, their product is unclear, they sell their time, their offer is quite commoditised and they aren’t positioned as a leader in their field. For all of these reasons, the strategies that might work for me, probably won’t work for them even if I gave them a point-by-point walk through of what my team does to drive sales or reduce wastage.

Big businesses are different. In the boardrooms of large companies you won’t find many sales and marketing people at all and the conversations are different. In the big end of business the conversations revolve around what I call “Balance Sheet Thinking”.

They talk about accessing funding to develop new product lines, open up channel partners, secure a celebrity endorsement, access strategic investment, file patents, refresh their brand, acquire a competitor or invest into a proprietary system.

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Balance Sheet Thinking is about understanding the mix of assets and how the assets can be utilised. Profit and Loss Thinking ignores the asset and simply looks for ways to generate money selling what you have — normally time and expertise.

If you want your business to grow, to become profitable and to be robust, you need to shift your mindset from P&L Thinking to Balance Sheet Thinking. You need to talk to your team about the assets of the business and you need to go on a mission to create or improve your assets.

In the industrial age, a typical balance sheet was full of physical assets that the company had developed — factories, machines, buildings and materials.

In the digital age a lot of the best assets are hardly recognised by traditional accountants. Assets like algorithms, lines of code, brand identity, content and culture rarely get put onto the balance sheet and yet they drive revenue a lot more than the physical stuff.

In the digital age you need to think about creating media, intellectual property, data and technology as primary assets for your business.

Over the last 5 years we’ve developed a simple strategy to help businesses accelerate from $1M to $20M + by developing and leveraging digital assets.

The question is, which assets do you need to work on developing first?

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To read the sixth of 24 rants where I deconstruct the key drivers of growth and profitability for traditional service or advisory businesses — click here.

Article written by Glen Carlson.