Is this glass half full? Or half empty?
Photo: Viktor Hanacek. Source: Picjumbo
Sales types look out and see infinite possibilities. Accountants see the world as debits and credits, as a process to be managed. Sales-dominated organizations emphasize growth; accounting-centric firms focus on profitability. Put simply, sales brings in the dough, while accounting gets to the bottom line. Both are necessary to any successful enterprise. But there’s often a lot of conflict between the two.
Sales people can feel like they own the business. After all, if there isn’t anything on the top line, there won’t be any bottom line. And they often have to deal with hostile competitors and regulations to get to reluctant customers who never seem to return their calls. But accountants can feel like they manage the business. Without proper accounting, payments can’t be processed, bills and payroll won’t get paid, reports aren’t filed, investors and lenders will cut off funds, and no one has a job. Both sides need the other, and need to respect the essential role everyone plays.
Photo: Jon Sullivan. Source: PD Photos
The same is true in a diversified investment portfolio. Some companies emphasize growth. They’re continually improving their revenues. They’re in areas that are rapidly developing, like technology or robotics. Their top-line growth is unbelievable. Sales people there are ascendant. Other firms focus on profitability. They’re able to squeeze more money out of stable or even shrinking markets. Their margins are incredible; everyone wants to know how they do it. In those firms, accountants rule, and for good reason.
But no one can afford to be smug. Successful firms balance the top line and the bottom line. They put the right incentives in place so revenues grow, and they make sure those revenues cascade through their financial statements so everyone benefits. And successful portfolios grow too, but they grow with efficient companies that have sustainable processes, that won’t flame out in a year or two.
Optimists see the glass half full; pessimists see it half empty. But seen correctly, it’s balanced. And no bigger than it needs to be.
Douglas R. Tengdin, CFA