How do you turn a P&L business into a Balance Sheet Business and create real value? “What do you mean by P&L or Balance Sheet?” I hear you say. Let me explain:
Most businesses (small and growing) focus on creating revenue and at the same time keep expenses under control. Hey presto to create profits. Many professional services firms or agency companies focus on this to the exclusion of everything else. They are often surprised to learn that the value is too wrapped up in the owners, for there to be any real goodwill or long term value. The problem being that the endless pursuit of pure profit doesn’t create something of itself which is replicable or scalable.
Compare with say, a company like British Land Plc, which owns huge freehold developments in the City of London and beyond or, say Apple, which holds Patents with genuine IP value; the creation of the new asset then generates its own value, which can then be enhanced and developed independent of the people around it.
According to Daniel Priestley author of “Income Follows the Assets”, on a very simple level, if you bought a flat, the income would follow the asset, in that you could rent it out. If you held a patent you could generate income by licencing it out. So, to grow your enterprise you develop or acquire more assets, and hey presto the revenue increases. Daniel stresses that businesses should move away as quickly as they can, from purely working out the revenues and margins, and trying to create something of genuine uniqueness in the business sector, which can then be developed. He also points out that it is the focus on developing processes and intellectual property you control and own, that helps to grow your business into something of value (and attracts revenues) which one day you can exit for value.
Daniel says in his book, “Imagine you had to send a box to a far off land. You are allowed to put anything into it, except you or your people. The box has to contain the entire tool kit to establish your business and generate profits in that foreign land akin to a franchise. The big question is: what do you put in that box?”.
What assets do you have which can be replicated, acquired or developed? If you can identify this then you can scale your business more easily. And more importantly, a third party will see the potential in what you have and the ability to deliver on future growth.
These are important questions to consider when looking at your long term strategy. We can help you with any aspect which requires legal input. It may be for example, getting your key contracts set up or ring fencing your intellectual property. If so don’t delay there is no a moment to lose. Get in touch now and begin the steps to working out what goes in that Magic Box of Value.
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