Risk & Business Magazine Lovitt & Touché Fall 2015 | Page 10

Like the tradeoffs between the balance
sheet and the P&L; it’s this reputation/
productivity balance that is the essence
of business. We want to make our
customers, employees, and shareholders
increasingly happier, which should lead
to a more valuable company; but we
can’t give away the store in the process.
“We want to make our customers,
employees, and shareholders increasingly
happier, which should lead to a more
valuable company; but we can’t give
away the store in the process.”
this one), etc. In turn, the customer group
represents all those who pay you. After
you subtract one from the other, what’s
left over, hopefully, is some cash to pay
back the bank, investors, and the owners.
It greatly simplifies how you view a
balance sheet if you look at it through
this three-stakeholder lens. If you
think about the balance sheet, it lists a
bunch of people and organizations with
whom your business has a monetary
relationship, telling you who owes
who and what cash, if any, remains
– hopefully a significant amount
of cash(flow) if you’ve structured
the business model correctly!
Process/Activities
These three groups of people, in any
business, are then engaged in only
three main activities or processes:
making or buying stuff; selling it; and
keeping track of the transactions. I
refer to this as the “process” or “activity”
side of the business where the focus
is on doing things better, faster, and
cheaper (less costly, for those that cringe
when they hear the word “cheap”).

It’s these three fundamental activities
that determine the profitability of
the business. Simply put, making and
buying stuff generates costs. In turn,
selling this stuff generates revenue.
And, again, if you’ve structure the
business model correctly, you’ll have
quite a bit of profit left over when
you subtract one from the other.
“Simply put, making and buying
stuff generates costs. In turn, selling
this stuff generates revenue.”
Like with the balance sheet, this
triumvirate of basic processes provides
you a greatly simplified lens throu