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Channel Matters Blog > August 2011 > The New Balance Sheet

The New Balance Sheet

by William Vanderbilt
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The disciplines of Finance and Accounting have been an integral part of corporate operations for a very long time.  Using instruments such as the Income Statement, the Balance Sheet and the Statement of Cash Flows, Finance and Accounting Departments attempt to track, measure project the financial position and health of the organization.  While that function is as important as ever, some of the tools used in the effort may need to be thought of differently, particularly in service-oriented areas such as channel sales.

A century ago, most companies were in industries such as manufacturing and agriculture.  These industries did, and still do, require physical assets such as machinery, plants, inventory and equipment.  The size and health of manufacturing companies is often measured largely by the total volume of physical assets incorporated into its operations and the efficiency of the use of those assets.  Generally, the concept makes sense…the more plants, equipment and machinery operated by the company, the bigger the company.  And how those assets are funded (ownership versus debt/liabilities) is an indicator of the company’s health.

In fact, the Balance Sheet reflects this thinking.  The Balance Sheet is comprised of three components:

  • Assets
  • Liabilities
  • Shareholder’s Equity

The truism to Balance Sheets is that Assets must be equal to Liabilities plus Shareholder’s Equity.  Put differently, the assets operated by the company were either borrowed (Liabilities) or owned (Shareholder’s Equity).  The concept is analogous to a home loan where the Asset is the house, the value of which is comprised of debt (what is owed to the bank via a mortgage) and equity (what is leftover and considered the owner’s equity in the house).

The Balance Sheet is a necessary and useful tool for all companies to track Assets, Liabilities and Shareholder’s Equity.  In fact, public companies are required to publish a Balance Sheet.  However, the problem is that in today’s information age, driven by services-oriented operations, the physical assets of an organization may be much smaller and often the most valuable assets of an organization are not formally captured on the Balance Sheet.

In channel sales, for instance, the skills, knowledge, relationships and experience of the channel management team can be one of the most valuable assets the organization has.  But those qualities are not reflected as assets on the Balance Sheet.  There may be very few physical assets a vendor has to put on the Balance Sheet.

In fact, the problem can be exacerbated when one considers how the people assets of an organization are increased in value.  Training and development of staff is a key way to improve the capabilities of staff and enhance what may be considered the most valuable asset of a services-oriented organization.  The problem is that training and development are often seen as an expense item on the Income Statement.  In other words, not only does an improvement in the people assets not get shown as a benefit to the organization, it can actually be seen as a detriment to it!

What can be done?  A critical step is for managers to understand enough about corporate finance and accounting to know how companies are financially evaluated and tracked.  It is then important to translate activities such as people development into financial terms.  In other words, show how a more capable sales team can positively impact the company’s financial results in more ways than simply increased sales.

For Channel Managers, this knowledge and practice can also help them have more effective conversations with Channel Partners; after all, Channel Partner businesses are driven by Finance and Accounting disciplines too.  Knowing how to translate the benefits of working with the vendor into terms that show the financial benefit to the partner can be invaluable!  Since resellers too probably have many of their most valuable assets tied up in their people, it is important to understand this same concept when dealing with partners.

Last modified on 6/30/2013 10:10:40 PM
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