Could We Be Reading Our Financial Statements Wrong All This Time?

I think that's a question that we all need to answer, each and every one of us. Especially, if we are either leading a business or are in ownership or in a position where we make financial decisions for a business. Now, here's where we would probably be very different in thinking to traditional accounting.

Okay. Let me paint a scenario for you. Let's say you've got a business that's doing it tough. Obviously, in tough economic circumstances, difficult decisions need to be made to be able to turn this business around into a profitable one. Naturally, the first thing we would probably focus on is the Profit and Loss statement, and the Balance Sheets. On the Balance Sheet, you'll see the Assets and the Liabilities. The Profit and Loss statement will reveal the Expenses and the Income that's coming into the business.

One of the first things we look at when we're trying to turn any business around or make changes as a leader, CEO, or as an Executive who's in a position of authority, is the Profit and Loss statement of a business. We would ask ourselves, "Okay, what's the biggest expense we can see?"

More often than not, one of the largest expenses would most likely be the rent. Now for most businesses, the rent can be quite high. Especially, if a business is not doing so well. Changing or re-negotiating the rent can be a lengthy and often expensive process. Very often in commercial terms, there are lease agreements in place and hefty legal fees to be borne. Hence, it's not the easiest path to go down to try and turn any business around.

The second place most CEOs or Business Owners look at is wages. "Okay, what does our wages bill look like?" Very often, wages are the second biggest expense on most financial statements. We all know that wages can be easily manipulated, not in the sense of financial figures but rather in the sense of addressing productivity.

“Where can we streamline the team?”
“How can we do things better and cut back on expenses?”

The traditional thinking goes,

“Can we do this with fewer people on board?”

“Can we do this by making some people redundant?”

This is often what happens with a lot of big companies where they see the team and the wages as an expense.

Now, I want you to stop and think for a moment. I would like you to consider an alternative definition of what an Asset is. An Asset is something that you can use to generate an income. It is something of value that adds to the net worth of any business.

Now just imagine, what if the people that work with you, that represent your company or are the face of your business. What would be possible if we stop seeing them as an Expense and start seeing them as an Asset?

Let me tell you a story. Let's say you're driving home from work one day and you see a “run-down building” that has a For Sale sign in the front yard. You look at this building and you think, "Wow, this place looks really bad, it looks terrible," but your business savvy mind sees something else in that house. You think, "Maybe I could buy it at a good price, I could reinvest and do some renovations. And then sell it for a profit" Let's assume you go ahead and buy this place. What do you do?

You will change the carpets, put a fresh layer of paint, get some new curtains and spruce the place up. You have a beautiful landscape done. Suddenly something that had very little value then has now become something that is quite valuable. You went from a run-down house that most people didn't see any value in, to creating something that is of value, that is adding to your net worth.

Well, let me tell you something. Your team, your business and your organisation can turn out to be exactly the same. They could go through a similar transformation process with you at the helm. You could take them, invest in them, grow them and create something of great value for your business or organisation. You could look at them differently!

Stop seeing them as an expense. Rather, look at them as an investment in helping your organisation or business to move forward. If you invest in them, in their dreams, desires and if you could somehow make it all align with the work that they're doing for your business, you would not only have an expense but an asset that helps you generate profit. It would also create a lot of goodwill in your business, and actually, add value to your business’s bottom line.

The point is this. We need to stop looking at the people that work with us just as an expense on a financial statement. We have to start seeing them as an asset as well. We've got to look at them and say,

"What can I do with this person?”

“What can I change?”

“How can I have this person help me take my business further?"

That's the mindset, the change in mindset that we need to deploy if we're going to move forward in changing our business from an expense oriented and negative outlook business to one of a positive, perfect culture and profitable business. It all starts when we stop seeing those we lead, as an expense and we begin to look at them as an asset for the business.

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