“We need to keep our sight on managing the balance sheet.”
I was stating a phrase often as I evolved in my career finance leadership roles. Along with that phrase was a follow-up noting, “The balance sheet is where the magic is.“
High emphasis is given to a company’s profit and loss performance within the business world. Yet, we must fully understand and monitor/manage the full range of financial statements – the income statement (P&L), the balance sheet, and the statement of cash flows. Mr. Pollin, the former owner of the NBA Washington Wizards, NHL Washington Capitals, and the arena in downtown Washington, DC (MCI Center built and opened on December 2, 1997), once emphasized to me, “Cash is king.” Cash provides freedom in business – space to allow for investing and growth decisions, a buffer to enable the peace of mind that the company can weather an economic downturn and possibly make decisions to come out even stronger on the other side of tough times.
Where does cash reside in the financial statements? The balance sheet. Cash and business equity (retained earnings) are the two figures that shine a spotlight on the possible health of a company.
“Wait, are you telling me the income statement is not important? How do we know how we are performing?” We are NOT suggesting the income statement is not essential – closely monitoring, understanding, and managing revenues and expenses is imperative for any business. A sustainable business does not happen or survive by performing at a net loss (expenses greater than revenues) year in and year out. Yet when a viable business generates a profit, a tandem step must be working diligently on managing the balance sheet.
What sources and uses of cash? Are we operating at a positive cash flow level? We must increase the balance sheet cash and retained earnings.
Most accounting professionals understand the descriptions and emphasis noted above. What Don and I encourage/implore individual professionals to understand – the concept of “manage the balance sheet” applies to all of us in our personal lives. The results can be catastrophic if we fail to recognize and dedicate ourselves to this critically important work.
A choice to do nothing and not own our personal development is still a choice. Once awareness is acknowledged, inaction is a choice. We need to highlight and understand the risks.
A component of our morning reading process includes The Daily Stoic: 366 Meditations on Wisdom, Perseverance, and the Art of Living by Ryan Holiday and Stephen Hanselman. The meditation of July 17th, The Start-Up of You, noted emphasis on personal development:
But what does Socrates say? “Just as one person delights in improving his farm and another his horse, so I delight in attending to my own improvement day by day.”
—Epictetus, Discourses, 3.5.14
An excerpt from the meditation notes:
“But shouldn’t we be just as invested in building ourselves as we would be in any company?
Like a start-up, we begin as just an idea: we’re incubated, put out into the world where we develop slowly, and then, over time, we accumulate partners, employees, customers, investors, and wealth. Is it really so strange to treat your own life as seriously as you might treat an idea for a business? Which one really is the matter of life and death?”
When contemplating our personal lives, let’s understand the perspective of a macro view beyond the financial elements. Below are several factors that we would consider aspects of the individual balance sheet:
- Financial matters are a significant pillar in our balance sheets. Be bold about embracing personal finance knowledge. We suggest Morgan Housel’s The Psychology of Money.
- Cash, investments, and net worth are the core elements in the traditional sense of the balance sheet.
Morgan Housel, in this CNBC article, notes:
“Being able to do what you want, when you want, where you want, with who you want, and for as long as you want provides a lasting level of happiness that no amount of “fancy stuff” can ever offer.”
- Commit to personal development. Invest your own time and money and actively seek learning opportunities in areas of your interest and professional growth.
- Self-care is essential and is not a selfish priority. You cannot pour from an empty cup. Exercise and get your rest.
- Mindset – embrace a growth mindset vs. a fixed mindset.
- Adopt a morning reading routine. Challenge your thinking and learn from others.
- Bring kindness, positivity, and encouragement to the world. You will feel better, be noticed, and appreciated.
- In small ways, help others consistently-every day, with no expectation. You will feel more fulfilled.
- What presence do you bring to the world – we need to be a friend to ourselves, our world, and each other.
- Stay CALM. Great strength and advantage accrue to individuals who can keep themselves aware and clear-headed in times of adversity. A helpful post from The Daily Stoic – How To Remain Calm When The World Is Freaking Out.
- Relationships – who do you spend your time with?
- What media do you consume? We are what we consume.
Slow down and prioritize time in your day to assess and work on your personal balance sheet. We hope this post provides thoughts that guide you toward an increasingly fulfilling life. To work on ourselves is a privilege and a joy – a better you helps to create a better world.
Invest in yourself. The world needs your talents and contributions!