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The Most Important Assets are Not on the Balance Sheet

Leslie Back | Thursday September 2nd, 2010 | 1 Comment

In the context of accounting, an asset is defined as any item of economic value that a corporation owns, especially those that can be converted to cash. Examples include land, equipment, inventory and the like. Intangibles, such as patents, trademarks and goodwill (only recorded during times of acquisition) can also be quantified for the balance sheet.

These assets, as well as the liabilities and retained earnings on the other side of the sheet, dominate corporate thought and action.  In so doing, however, companies overlook their most important assets, which cannot be sold or easily measured. If corporations would focus on the acquisition and development of these unconventional assets, the rest of the financials would take care of themselves.

A company’s primary assets are its employees. The employee is the secret in the sauce and the glue that holds the corporation together. Without employees, other assets are valueless, except for resell. Employees are considered in the financials. They are expense items on the income statement. But, the real measure of the employee expense can be measured by the loyalty, commitment and love (yes, I said love) that the employees have for the company and their work. Managers should gauge the health of the company not by the figures on the financials, but by the devotion of the troops. If nations can measure progress in terms broader than the GDP, then no company should be without a comprehensive, measurable and regularly reviewed Employee Happiness Index.

After employees, the company’s reputation is its most important asset, particularly if the corporation publicly declares commitment to the triple-bottom-line. As reported by Jeffrey Hollender earlier this year, Fortune has estimated that a company’s reputation represents 75% of the total value of an average business. BP certainly has substantial assets. The company spent $100 million during the oil spill on advertisements, or $5 million per week. But, given public perception, what is the company really worth? In the long run, what is its value?

Which brings us to the last non-financial asset: corporate mission. This asset, when appropriately applied, will protect all other assets. The mission provides guidance. It gives employees a sense of purpose, ensuring they love their work. It protects reputation as it guides all decision-making and encompasses interests to consider people and planet, as much as profit. The mission, clearly defined, offers direction on what tangible assets to acquire and where to divest. The mission is the organization’s compass and the written articulation of corporate soul.

If managers shift their focus from preoccupations with financial statements to these intangibles, the profits will take care of themselves. An organization that has a mission beyond mere moneymaking, considers its employees its greatest investment and secures its reputation by doing what is right will meet with success unexpected in common hours.

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  • Leslie Scott

    Practically if we visualize then the balance sheets are the end result sheets that shows up the basic data that has been involved in making the balance sheets. Preferably the term that we depends on basically in the expense which terms to be the most preferable asset from the company perspective. And to get the end result basically, we have deployed the cloud based Replicon’s expense reporting software – http://www.replicon.com/olp/expense-reports.aspx which works in a hassle free manner and helps manage the expenses along with the other related terms as well which manage the things to hook up perfectly and preferably.