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Value Creation Blog

Profits Don't Create Value Learn What Does

Posted by Josh Patrick

ValueWe’re in the process of bringing a new evaluation tool on board.   This tool helps us evaluate and monitor 18 areas of wealth creation within a business.  While talking with the CEO of the company he mentioned to me that he doesn’t think that profits and creating value are the same thing.

When I first heard this statement from him, I immediately started to push back.  After I thought about it for a while, I came to agree with him.  Profits are not the same thing as value.

Value comes from making a customer happy.  Yes, a company has to be profitable to exist.  At the same time value comes from having repeat customers who speak highly about your company, provide you with lots of business, and tell all of their friends about you.

Customer satisfaction never shows up on a balance sheet.  At the same time, there are ways of measuring how happy your customers are and the higher the rating you get from those customers the more valuable your business is.

Value comes from having business systems that create more business.  If your business has been able to systematically create value for your customers, this ability creates value for your business.  It might not immediately create profits, but over time you’ll be able to attract more and higher quality customers to your company.

This is where niche management comes in.  Businesses that have learned how to create, manage, and duplicate niches make much more money, have more value, and provide better service than companies who try to serve everyone.

Value comes from being efficient and effective in your business operations.  Lean is all about taking waste out of your company.  Whether you are a service organization or you’re a manufacturing company you have waste. 

Waste slows down your ability to service your customers.  Waste slows down your ability to innovate and come up with new products and services.  Waste often develops and mutates into quality problems in your company.  Companies that have learned to take waste out of their operations will have happier customers that lead to a company with a higher value.

You might want to think about what are the things in your company that create value, but can’t be measured in a profit and loss statement.  It’s the off balance sheet items that in the end create lasting value that others will want to own.

Josh Patrick

If you’re interested in learning more about our new value tool, please click on the link below to set a time for a demo from me.  The thirty minutes you spend with me on the phone will be well worth your time.

https://my.timedriver.com/QR4PL

Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.

Topics: profitability, for business owners, value creation, enterprise value

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