Profitability Channel

Understanding financial reports is a must. It’s not too difficult to get clear on an income statement. The black number at the bottom means a profit was made. A red number means you didn’t.

A balance sheet is not quite as easy but is every bit as important as knowing whether a business has enough revenue to go forward. No business can be sustained unless the owner understands what the company assets are and who lays claim to them.

Until recently accountants have found it nearly impossible to determine value or risk of assets such as intellectual property, business processes and software investments as well as considering environmental and terrorist risks. Reported in the September 9, 2007 issue of the New York Times by Denise Caruso (dcaruso@nytimes.com) a new approach to assessing intangibles has been developed called the blended value proposition.

Not yet adopted as a standard by FASB or other official accounting bodies it is being used in 57% of international companies (through 2004), was ratified earlier this year as a standard for urban and community accounting by the United Nations International Council for Local Environment Initiatives and is already being taught in the leading business schools in the U.S.

What does that have to do with you? Plenty. First make sure you understand your own financials. Do not leave it up to your accountant or accounting staff. If you have accounting staff make sure they understand it. Ask questions. You’ll be amazed if you discover you have the best bookkeeper in the world. You might be just as amazed if you discover you have the worst.

Second, make sure you and your employees understand the value of intangibles. Don’t overlook the significance of proprietary processes or research and development or market research along with the regulars of patents, trademarks, copyrights and brand recognition. You might not be able to list them on your B/S just yet but it would very motivating.

Finally, you cannot afford to stop seeking what’s new. Most business disasters occur when we are so focused on a single goal or outcome we don’t see what else is lurking out there.

iBusinessChannel is the best place to find something new. Every week or so watch a program that might not seem relevant to your daily life. You’ll be surprised at the new ideas that pop into your head for solving a current problem.

Wouldn't you hate to be Mattel right now? Millions of dollars in returns, lost sales and horrible public relations. What's the new plan? They are going to take a more active role in testing toys instead of "just licensing the products and collecting the checks".

Good idea.

Small business owners already know who is accountable for everything that happens in their companies even if they aren't extremely knowledgeable in every area. Need help in employee relations, sales and marketing, working with the government? iBusinessChannel has the resources whenever you need to add "student" to your list of roles.

Until recently I didn't think we needed a program on ethics or corporate responsibility. Maybe we do; I just hope most of our viewers won't need it.