I am having a wonderful time discussing with Pepita on the post Where is your focus?, anyone who wants to join feel free!
But the discussion has led me to think about how to value a business. Remember I am a Chartered Accountant by original trade and therefore should be a 100% advocate of the numbers. Well of course the numbers are vital - they show the progress, what value you are adding to the basic raw materials that you use be it widgets or knowledge. But as I said the financial statements are showing the value that you have created - past tense.
I have always as a Finance Director looked at the numbers and 2 other areas to understand both past, present and future value. The other 2 areas are:
- Reputation - how others perceive you be it customers, employees or stakeholders. This reputation is critical for the future. It is a value based on the present but will determine your success of the future.
- People - The way that your employees feel - motivated, committed or engaged will determine the creativity, productivity and future reputation with stakeholders/customers. Value is created when you have collaboration, people understanding the vision and their role with it, that you have understanding across the business not just data! What people do in their day to day work create a reputation and ultimately the profit or loss.
So as a Finance Director I always looked at the following value creation.
Value Created in the Financials - PAST
Value of Reputation - PRESENT
Value of People - FUTURE