Muscular management, with no fat　― Keep your organization ‘muscular’―

This time, Inamori* spoke about the above motto in his book : Practical Accounting -Business Administration and Accounting -. What Inamori said is quoted with “”.

“When a company’s stock is listed, most leaders want to make their company look good. Such a vanity may end up accumulating ‘unnecessary fats’ in a company. If you want to make your company strong and resilient, you must be determined to maintain thrifty and frugal management against your desire to show off.”

Mr. Inamori highlighted the below five points for us to keep the above motto, in the chapter of ” Keep your organization muscular” .

I will explain them one by one.

1. Make the best use of “second-hand” assets

” When it comes to purchasing manufacturing equipment, or engineers on site wanting to buy new machines, I have been telling them, `If second-hand machines and equipment are good enough, you should manage the process with those used machines. ” Even if there is a machine with excellent performance, we do not allow people to buy it easily, and we have educated them to think thoroughly about how to use the existing machines and to deliver our originality and ingenuity. ”

→ In addition to the above motto, I would like to think about the attitudes towards tax. When the sale of your product or service is eventually and unexpectedly increased, or you see an unexpected surge in demand─all of these tailwinds can drive up your bottom line. On the other hand, if expenses remain the same, there must be profits. If you make a profit, you will of course be taxed on it. Some business leaders don’t want to pay taxes, so they buy things they don’t need, to increase their expenses, and consequently reduce their profits. In real estate, some business owners, who seem to have made unexpected profit, usually purchase quite expensive houses or commercial buildings. Purchasing luxury properties may cause high maintenance costs. When some equipment breaks down, it may be custom-made, and therefore, the replacement cost would be quite expensive. Property taxes are also high. In the short term, those owners manage to save tax, but over the middle to long term, they spend a lot of money for maintenance. At the end of the day, it is the smartest to pay the tax amount according to the profit while keeping the low expense.

2. Maintain the sound and healthy accounting (no non-performing assets)

“Inventory checks should not be left to others, but should be done by top management by themselves. They must directly check the goods and products to determine the write off. For example, top management’s check the warehouse to inspect the products and order to write off the goods which remain for the past three years and with no expectation to be sold. Top management needs to pay close attention to the company’s assets. When ceramic products become unmarketable, they are the same as pebbles and therefore, should be eliminated from the corporate assets with values.”

→ If you are a manager, you need to understand what the assets of the company are. I also would like to recommend checking the fixed assets. Fixed assets, especially real estate, are taxed and require maintenance. If those assets do not contribute to the company’s revenue, some strategies, by which those properties can generate cash flow, must be considered and implemented. Even in the service industry, if the service has not been completed, it must be canceled. The occurred service fee must be charged and collected.
Top leaders should also pay attention to such inventory and encourage writing off as soon as possible.

In summary, to eliminate wasted or obsolete assets and to create a muscular financial condition, it is important not to have assets that seem like overinvestment, but to have assets with efficiency. Points 3-5 will be explained next time.

* Mr. Kazuo Inamori, the founder of Kyocera, KDDI (one of the top tele communication companies in Japan) and the top of revitalization project of JAL. As a well-known Japanese entrepreneur, he has been sharing his experiences and management know-how with managements of small to middle companies in Japan.

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

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