Words to make you sound smarterBY JAMES LEONG C.FOO
Chances are if you work with an MNC, a local public listed company, an SME or even a non-profit organisation in Singapore, you will be bombarded with financial and accounting jargon whether you like it or not.
You might have passed a module of accounting, hated it absolutely and thought it might be the last you have to deal with this boring topic after you left school. But you find you cannot escape from its pervasive (some say "perverse") presence in organisations. Well, here’s why.
Management is the steward of financial assets- whether they are contributed by shareholders for commercial enterprises or stakeholders such as government bodies and members of public for non-profit organisations.
They are accountable to stakeholders to use the funds wisely for the intended purpose of the organisation and to earn a return for profit or cost recovery. The tools they use to ensure accountability are largely financial ones.
To be a member of the management team means you need to be a steward. To earn your stripes, you need to learn to speak the same language as management. When you lead a team, you have responsibility for the bottom line.
You must know what drives financial performance and what is it that your boss is always managing, as well as how to excel in it.
According to legendary investor Warren Buffett, "Accounting is the language of business". So what are some magic words you can borrow from the accountant to turbo-charge your career when presenting ideas to your boss and get that important endorsement?
Couch your proposals in terms of how it could enhance shareholder value. This can be achieved by increasing the organisation’s cash flows, or cause the same amount of cash flow to be received earlier rather than later.
The alternative is to minimise risk in business activities. Risk could be reduced by diversifying revenue streams and customer base or having long-term contracts with price escalation clauses.
Show how your ideas improve the time it takes to sell your company’s products. This could be achieved by making better merchandising decisions, buying the right quantities to match demand or stimulating sales. Ways to encourage customers to pay early will be well received.
Together, these would shorten the operating cycle and increase the company’s liquidity, which is good for cash flow.
Businesses with high fixed costs relative to variable costs (high operating leverage) are very sensitive to changes in sales volume and their profitability swings will be amplified by the business cycle. Fixed costs are those that do not vary with sales volume while variable costs do.
For example, you pay the same rent to run a factory one or three shifts a day, so it is a fixed cost. On the other hand, each iPhone that Apple produces would cost it some amount of money.
Hence its cost of sales will be variable. Showing how your ideas can shift components of fixed costs to variable costs when a downturn is approaching would help to reduce the pressure on sales volume needed to breakeven a business operation. You could help save jobs.
So, get ahead in your career by using these magic words when you have an idea to present to your boss!