How Daniel Priestley's Concept of Profit and Loss vs. Balance Sheet Thinking Is Helping My Client Achieve a 7-Figure Profit Within 5 Years

A while back, I worked with a small, multi-generational construction firm specializing in access control systems that was struggling to grow beyond their current capacity.

Although they had been around for about 8 years and had a steady flow of projects, they struggled to grow beyond survival mode.

Our meetings would be dominated by conversations around how to book more sales meetings, whether to use LinkedIn or Facebook/Instagram, and how to get cheaper leads.

While these tactics kept the business afloat, they weren't fostering significant growth.

For a long time, I wondered what we were doing wrong. The business was built on sound fundamentals, so why weren’t we growing?

It was during one of these frustrating phases that I came across Daniel Priestley’s book 24 Assets. His discussion on Profit & Loss Thinking vs. Balance Sheet Thinking was a revelation.

What is Profit & Loss Vs. Balance Sheet Thinking?

In a nutshell, the idea states that small business operators practice Profit & Loss thinking, which is focused on cutting costs and making sales.

Large businesses, however, practice Balance Sheet thinking, which focuses on developing assets that will earn an income for a long time.

Think of Profit & Loss Thinking as trying to patch up a leaking boat, while Balance Sheet Thinking is about building a sturdy ship that can withstand storms.

Understanding this concept has been a game-changer for me and my clients. Because Daniel explains it so well, here is a quote from the book in condensed form:

“After interviewing thousands of business owners, I noticed that small companies constantly focus on generating leads and converting sales. Almost every conversation revolves around selling more or saving money. An accountant would record this type of activity as Profit and Loss, so I’ve come to recognize it as profit and loss thinking.

Big businesses are different. In the boardrooms of large companies, you won’t find many sales and marketing people at all, and the conversations revolve around what I call ‘balance sheet thinking’. The Board talks about accessing funding to develop new products, opening up channel partners, securing a celebrity ambassador, opening new territories, filing patents, refreshing their brand, disposing of an asset to free up cash, acquiring a competitor, or investing into a proprietary system that will give the business an edge.

Balance sheet thinking is about understanding the mix of assets and how they can be utilized. Profit and loss businesses ignore the assets and simply look for ways to generate money selling what they have – usually little more than time and expertise for a small business.

If you want your business to grow, become profitable, and be robust, shift your mindset from profit and loss thinking to balance sheet thinking. Talk to your team about the assets of the business and go on a mission to create or improve those assets.”

This shift in mindset inspired by Daniel marked the beginning of a transformative journey for how my client and I approached the business.

Application and Results

Within 12 months of embracing balance sheet thinking, we took decisive actions that transformed our business trajectory:

• We disposed of an under-utilized asset, unlocking significant cash flow.
• This enabled us to secure a major partnership deal with a consulting firm offering complementary services, granting us access to their database and 20 years’ worth of expertise and reputation.
• This strategic partnership increased our average order value.
• It also boosted our customer lifetime value.
• These improvements are projected to catapult our net income into the high 7 figures within 5 years.

In the short and medium term, we are spending about 70% of our profit on investments necessary to secure funding and close larger multi-year contracts with multinational institutional investors. These investments include:

• Hiring a management team
• Sponsoring prestigious local events like annual golf tournaments
• Investing in accreditations and certifications

Conclusion

I have found immense value in adopting this dual perspective of Profit & Loss vs. Balance Sheet Thinking.

I find that, while profit and loss thinking is essential for day-to-day operations, balance sheet thinking is crucial for long-term growth and stability.

The most productive thing you can do is use your current resources to build your assets. Of course, to build out these assets, you first need to know what an asset is and what is not.

If you’re curious about which assets you could leverage to create lasting value for you and your business, I recommend reading Daniel’s book 24 Assets.

It’s short enough to read in one sitting, full of delightful insights, and completely free to download here .

#businessstrategy #businessdevelopment #constructionindustry #balancesheet #profitandloss #24assets