The miracle of boosting profitability: QA in business administration “Improve the profitability before seeking more capital” 2

This time, Inamori* spoke about the above motto in his book : Practical Accounting -Business Administration and Accounting -.

What Inamori said is quoted with “”.

“Question: How can I improve the profitability? “

“Answer: Through extraordinary efforts and ingenuity, conduct everyday `maximize sales and minimize expenses” so that you can accumulate profits while maintaining the quality of your services.”

Here, Mr. Inamori talks about the secret to creating a structure to increase profits. Three points to keep in our mind to boost the profitability are as follows.

Let me explain one by one.

1. Thoroughly reduce expenses

“In Kyocera starting up, I remember Konosuke Matsushita, the founder of Panasonic, talking about `reservoir management’. I realized how important it is to pile up retained earnings, which eventually come from the desire of the top leader. People never start striving themselves before they really feel they must. Even though they work hard, it is sometimes too late. We must bring our best efforts while we have sufficient resources in business administration. I have been working hard day and night to improve profitability to pile up sufficient reserves before giving up. We refer to Sumo wrestling: strive yourself in the center of the ring. The first thing you need to do now is to increase the profit ratio. You must keep conducting everyday `maximizing sales and minimizing expenses’.”

→I think all staff members need to understand the company’s financial status. The top leader must also sincerely ask all the staff to help in improving the corporate financial status. Furthermore, that top management himself needs to save expense on every minor item. If someone asks me whether or not I have been working hard to wrestle in the center of the ring, I may not be able to say “Yes.” I must humbly reflect what I have done so far and push myself harder to change my behaviors.

2. Maintain the quality of your service

“ However, minimizing expenses must not end up with deteriorating your service quality. This may lead to losing your customers. This means lowering costs more than have done your competitors, while providing excellent food and service under the current facilities. This will require extraordinary effort and ingenuity.”

→This may sound difficult to conduct but we must look in the same direction and work as well as liaise together. If each staff member considers and analyzes what kind of service can impress and please our customers, we would be able to deliver better services and have more repeaters. By doing this, staff would be able to be more creative and proactive in terms of providing professional services.

3. Make funds from profits

“ Hotels made of concrete begin to deteriorate 30 years after its completion. Over 30yrs, the construction cost seems to be fully depreciated. Thus, as the owner’s position, you must have had enough cash flow available for the next investment or capital expenditure. You mentioned the deficits in piping and air conditioning, but you should have depreciated those expenses and renovated them within say 10 years. Those appreciated amounts can be used as funds for future renovation or refurbishment, making your financial status healthier. For you to have such funds come from the scheduled depreciation, you must have left at least 10 percent of profit every year.”

→If we subconsciously think about how to avoid paying tax, or we are not supposed to make huge profits, we won’t be able to make these profits. The top leaders’ mindset drives the financial results. Inamori said we, top leaders, must have strong desires under our subconscious mind: we must make and definitely accumulate more than 10 percent of annual profit.

Further queries or doubts, please email to ytomizuka@abrilsjp.com

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