The hidden assets and liabilities of your business
A companies balance sheet reports on the assets and liabilities of a business in hard, quantitative terms. But as any investor will tell you, this is only part of the story; what really matters is the relationship it has with customers and how well it manages them. And every business has assets and liabilities they don’t know about but the customer does.
Unfortunately, there are no easy ways to measure this. Goodwill calculations are more about balancing the balance sheet post acquisition whilst brand valuation methods don’t adequately reflect how people really feel. If they did, customer defections would be easier to predict. Apart from these imperfect methods, there is no reflection on the balance sheet of the health of the business, so most are flying blind.
Take supermarkets for instance. For years their customers have lauded the convenience and low prices they got but complained bitterly about all sorts of things like nutritional labelling, marketing unhealthy products to children and the effect of the big four on neighbourhoods and the environment. These were effectively long-term liabilities that the major players accumulated over many years with no penalty until the landscape was overturned by Aldi and Lidl. The 10% market share thye have accumulated, most on the past three years is testament to the unhappiness of customers with the incumbent propositions. What’s important to understand however is that customers do their own mental accounting about how companies they use and whilst they may seem loyal on paper, their feelings reveal a much more complex set of trade-offs.
I’m not advocating a wholesale change of accounting methods. But I do think management teams should spend as much (if not more) time thinking about how well they serve customers rather than just focus on the money. If they did they would discover emotional assets and liabilities they didn’t know about. Which would enable them to do better by everyone – customers, staff and investors. A happy exchange.
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