Battleship Balance Sheet

Are you in shape?

Just finished reading a biography of Jamie Dimon. Like him or loathe him the wunderkind of Wall St (and the banker the Fed turns to) has a relatively straightforward plan: build your balance sheet, strip unnecessary expenses and wait for the market to turn so one can pick up quality assets at a discounted price.

You can read more yourself but let me share the bottom line: he’s been pretty successful.

His base strategy – the foundation really – is to build the “fortress” balance sheet, re-christened in late 2011 the “battleship” balance sheet.

Recall from Finance 101 the balance sheet is that point-in-time measure showing assets, liabilities and remaining owner’s equity. Having a strong one sure helps in ongoing operations – much like a battleship cutting through waves ready for any sea.

Shipshape

That metaphor – the battleship balance sheet – really got me thinking. How’s your balance sheet? Your personal one?

Are you ready for what comes next, or do you need some housecleaning to prepare for any changes in the weather.

  • Assets – Are you current? Up to par on the latest thoughts, practices, legislation and emerging issues? Aware of the basic needs in your business and the levers to pull for each? Businesses need different solutions – training, recruiting, comp – over time. Knowing and actually delivering same makes you an asset: rendering solutions works. Just ensure your solutions are current: yesterday’s answers may not be applicable today. Stay current, stay vigilant and deliver: promises are liabilities. Promises unfulfilled become bad debt to be written off
  • Liabilities – Weaknesses fall into two camps: things you don’t know about your business and what you don’t know about your discipline. Both can be solved for. Not understanding your business displays a fundamental lack of curiosity – if you really cared you’d ask questions, study, do comparisons. Not knowing how your business operates is a sure sign of an uncommitted person: there is no excuse. Failing to know enough about your discipline has two general solutions: if high enough on the food chain hire those who excel in areas you don’t. If you’re not there yet pitch in and learn – or shove off
  • Equity – Your equity as a leader – the delta between your assets and liabilities – is algebraic. Decreasing a liability automatically increases equity. Working on assets and liabilities simultaneously has a compound effect quickly strengthening any sour statement. Keep in mind though that unused equity much like the untapped capital sitting in your bank’s reserve in and of itself does nothing: it looks pretty but until applied it produces no value. Build your equity, spend it wisely and watch it return an even greater percent as your balance sheet improves. Leave it sit idly and its as useless as window dressing

Business is not all smooth sailing. Taking stock periodically is a requirement as both time and events can alter a strong balance sheet into an also-ran. Continuous self-assessment matters then because organizations are constantly evaluating talent trying to determine where we each of us fit on the ledger.

Knowing what you need to do and acting on it is the difference between building a battleship and a ketch: which do you want to to sea in?

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3 thoughts on “Battleship Balance Sheet

  1. My balance sheet were notoriously unbalanced, until I invented the “allowance for calculation error” during a finance exam. Got points for innovation, went into marketing instead of finance.

    • Yes, I did a similar thing in grad school creating a new methodology that apparently wouldn’t pass GAAP rules. Never mind that I actually got the right answer – it was off to headhunting for me!

  2. I’ve written a couple of posts that remind people that “your life is your business,” and you have driven that point home beautifully here. The only ones steering the ship and pointing the gun is us! Thanks again for another great post.

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