We measure the Wealth, but what’s the Health of your business?

Luca Pacioli invented the concept of double-entry bookkeeping back in the 15th Century, which led to the development of the financial statements we know today. The Profit & Loss Account, Balance Sheet, and Cashflow Statement have become the way we measure the wealth of a business. 

To the educated eye, these documents can tell us a lot about a company. How asset rich they are; how long it takes them to get paid by their customers; how much stock they hold and for how long; how much they rely on borrowings. And a bunch more.

But there’s so much they don’t tell us. For the past 20 years I’ve been playing this over & over in my head. What’s missing? Why do companies that look good on paper – Patisserie Valerie anyone – suddenly go out of business? Or why do they (looking at you here Blockbuster & Blackberry) miss the next wave and get usurped by a young upstart?

We’ll not find the answers buried in the Annual Report & Accounts.

I believe that we need to start measuring the Health of the business, not just its wealth. We need to see the whole picture – a holistic view of the organisation. So what would that look like? 

Again, I’ve been mulling this over for a while. Long runs have been devoted to thinking about how we could capture this information and make it public! We’re fortunate to be living in the time of Big Data. There’s so much information available to us today, and of course so many ways to share it. 

Some of the information will be readily available – we’re already measuring it. Things like:

  • Customer Satisfaction – many organisations already use NPS (the Net Promoter Score), so sharing that regularly would give us the ability to see how happy a company’s customers are at any pointn in time;
  • Customer Churn – the rate at which customers are leaving the business;
  • Supplier payment timescales;
  • Employee Churn – this could give us an insight into the culture of an organisation

It would also be really useful if we could learn about: 

  • Employee Satisfaction – how happy are people inside the organisation? Is financial performance linked to happy staff? 
  • Impact on the local economy – how much money does a company spend in its local communities? How many families are impacted?
  • Environmental impact – how does the company align its’ purpose with minimising its environmental impact?
  • How much does the organisation invest in Innovation? How are they going to avoid doing a ‘Blockbuster’?

An example:

We use Receipt Bank to process our supplier invoices & receipts. Receipt Bank is a great app that extracts the financial data from these documents and then publishes it to Xero, our accounting platform. This got me thinking – if they can extract the financial data, then surely they could extract the geographic data. Where is the supplier based? Can we publish this too, in a format that we can use to see not just how much we spend, but on what, with whom, and in which locations?

The B-Corp model covers some of what I’m talking about and I’m keen to explore it for Ashton McGill as we head into the ‘20s. I’m also thinking about how else we can capture the data needed to share our impact – I plan to use my own business as the live case study for this. 

I believe that this approach will give us a much better view of an organisation. Enlighted employers will want to share it; interested potential employees will want to consume it. It’s transparent and a world away from the past.

What else would you want to see or share?

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