I was talking to a client recently about their business. They were explaining to me what information they wanted to see on a regular basis that they believed would help them monitor their business. The indicators he felt were key were Turnover (sales income), Profit, and Cash in the bank.

Without wanting to start an argument there and then, I realised that I have a lot of work to do to get the business owner to understand what he really needs to know, why he needs to know these things, and what he needs to do about things when they are not good.

I have often talked about the Balance Sheet being more important than the Profit and loss, and I still stand by this statement. The Balance Sheet tells you what you own, who owes you money, and who you owe money to. These three facts give you a far better snapshot of your businesses health than any other measurement.

Take cash in the bank as an example. It doesn’t include cheque payments to suppliers that have not cleared. It doesn’t tell you how much you are owed by customers, or how much you owe to your suppliers.

Profit is a nice measurement if you are the taxman, but it doesn’t tell you how profitable you are. Making more profit than last year might sound good, but what will you do if you are only making 10% net profit, when last year you made 15%?

Running a business requires focus on the future. A review of the past is helpful, but only if you do things differently as a result of the lessons you have learnt. If you are measuring your performance by the wrong indicators, do you even know what those lessons are?

Who is harder to please, trustees or shareholders?

There is a perception that professionals in the public or third sector are not up to the demand of the private sector. The cut and thrust of commercial life, with private equity funding, hard nosed corporate deals, and focus on the bottom line is thought of as a tougher environment than the soft, touchy feely world of charities and public services.

I beg to differ.

Having worked in both sectors, I can happily state the obvious, that they are different. Beyond that, the range of stakeholders in a third sector organisation requires more than attention to profit and shareholder return. Financial sustainability is key to every organisation, but so are the people.

The single minded pursuit of profit in a commercial business is sweetened by the financial rewards that individuals are offered. The third sector has long realised that such incentives can be offset by greater flexibility, offering a quality of life, and recognition of the difference that each person makes.

Those who lead commercial organisations usually do so with a combination of the carrot and the stick. As an employee, this simplifies the relationship. In an organisation that is led by passion, profit is not enough to be deemed a success.

A shareholder’s primary duty of care is their financial return, a board of trustees asks for far more than that. Trustees are quite rightly harder to please. The commercial world could learn a lot from them.

I was helping a client today to prepare a budget. Due to the kind of work they do, we spent a bit of time talking about how much something costs, and how much something is worth. Let’s call the first it’s cost, the second it’s value.

When working out how much to charge for something, do you start with its cost, or its value?

From a customer’s perspective, they are interested in value for money, so your question should be whether there is enough of a difference between what they pay (Value) and what you spent on it (Cost). Assuming you sell for more than you paid, you make a profit. The eternal question is whether it is enough profit. And how much is enough?

It is a curiously English attitude that says we should “only” make a certain profit margin. I speak with many business owners who feel that to make “too much profit” is wrong. Some feel uncomfortable with making “too much profit”. But how much is too much?

I would encourage you to charge as much as you can; after all, if the customer is buying then they must feel they are getting value for money. Competition is the best gauge to what the market is prepared to pay.

But what if there is no competition – is there a limit to your profit margin?

I gave a presentation to a business-networking group this week on the subject of Social Media and Business.

Realising the audience was at best sceptical (with a couple of exceptions!), and at worst cynical, I used the following images.

• Plain website = shop window, hopefully directing you to the door in.
• Blogging on your website = shop front glass now removed, allowing you to talk to potential customers, and for them to talk back (for example by leaving comments).
• Social Media (such as Twitter, Facebook, and LinkedIn) = you have left your shop and are walking about sharing your ideas, and encouraging others to talk about them as well (not always with you present).

It is a bit blunt, but seemed to get the key messages over:

1. Social Media is not something that only happens online – it’s a mesh of physical meetings and online activities.
2. Ideas that are spread through groups of people are far more powerful than ideas delivered to individuals.
3. Real engagement is when people do things for you that you didn’t ask them to.
4. Learn to lose some control – in return for greater reach.

With thanks to Steve Bridger (http://www.stevebridger.com/) for his insights…

Interesting business breakfast this morning. Good pitch by a local authority strategic director.

Raised a chicken and egg question: which come first, the housing or the jobs? This is made particularly tough by the fact that each is “managed” by a different body. How quickly can a local authority react to a change in business needs? Would you locate to where the staff are, or base yourself in a place you like to live? Which can be changed quicker: the skills, or the availability of staff?

Must be a tough job predicting what we will need in 10 years time when most folk don’t know what they will have in 10 weeks time.

Attended the launch of Creative Republic last night in Coventry. Having lived and worked in and around the city for many years, it never ceases to amaze me how much there is going on and to see here. And yet…

How is it the city still has an air of despondency, why can’t it find the key to successfully promoting itself, what will it take for outsiders to take it seriously?

It struck me that there is a comparison with our economy at the moment. On the surface, it’s all doom, gloom and despair, and yet underneath there is a vibrant and enthusiastic marketplace.

What will it take to change the perception? Maybe those who exist to make money at other people’s expense need to visit Coventry.