What made listing possible　― Keep the ‘One to one correspondence’―

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

Mr. Inamori* highlighted the below four points for us to understand how important it is to run a business based on cash, in the chapter of ” Business administration based on cash”.

Where is the money we earned ?
Correspondence between sales and COGS(Cost of Goods Sold)
What made listing possible
Made profit but little cash left (always reserve the minimum cash)

I will explain them one by one.

１．Be sure to issue slips when exchange goods or money

“Goods, services and money are always exchanged in business activities. At every single transaction, regardless of its amount, you must always keep a one-to-one correspondence between goods, services or money and slips (records or proof). I call this principle the ‘principle of one-to-one correspondence.’ Although this seems simple and easy to conduct, it is not actually conducted for various reasons. For example, the invoice is processed first, and the goods are delivered later. On the other hand, even large and listed companies often deliver goods first, but issue slips the next day. This kind of slip manipulation or off-the-books processing would eventually allow staff to change figures or numbers as much as they want, and at the end of the day, the financial statements of companies would end up getting untrustworthy.”

→ Recently, it was reported that the industry’s largest and fastest-growing companies made the fraudulent manipulation of sales. I believe leaders of those companies had certainly strong passions to accumulate the sales volume. As their passions were too strong and intensified, it became a corporate culture to produce sales no matter what approach the sales forces take. Sales people were somehow forced to take illegal actions to create sales figures.

The root cause of why such injustices happened was the top management misunderstands the mission of the company. Inamori says that the ultimate reason is for a company to “fulfill all employees materially and mentally”. If you, as a top leader, misunderstand this mission, you would fail in business administration. If a top management strongly believes that this company exists to satisfy his own desires,” that leader puts pressure on their staff to increase sales by any means. This made me reconsider how important the mission and vision of the business is. I think it is very important to find a way to pursue profit to fulfill employees.

２．Correspondence between sales and COGS(Cost of Goods Sold)

“(Regarding the volatility in the monthly profit), in the end, he did not process the purchase slips for the products he sold in the United States. If the money is delivered to the customer, the profit will increase, but if the purchase process is completed one week later, there will be a large deficit the following month. In this way, the monthly profit fluctuated greatly. He believed that the purchase cannot be processed unless the “shipping documents” are received and the payment was confirmed. That’s true, but the ‘principle of one-to-one correspondence’ must always be conducted. For that reason, when the goods arrive, we were supposed to create a purchase slip and record the accounts payable to Kyocera so that we can always process the purchase slip when the goods arrive. I instructed him to compare the purchase slips with the shipping documents and then turn the accounts payable into a payment obligation to the bank. ”

→ This stabilizing the fluctuated monthly profits can be conducted when top leaders consider “ Where did you get the goods and services you sold?”, “What is the cost of goods sold?” Mr. Inamori said the accounting numbers are the same as the instrument panel that pilots see in the cockpit. Therefore, we should always ask ourselves: Can we use all the money we have now for the investment? How much is the actual cost of goods sold? How much are fixed costs allocated?

３．What made listing possible

“Even when the Kyocera US was in the process of IPO, Mr. Miyamura, the auditing accountant, believed ‘Since the company was founded as a venture and is under IPO process so quickly, the company’s internal accounting system probably does not work well and I was going to find various problems.’ However, when he looked into the accounting record, he found that all slips were processed on a one-to-one correspondence. Since then, Mr. Miyamura has admitted that Kyocera’s accounting system has been working correctly and properly. This is simply because Kyocera has been keeping this principle of one-to-one correspondence. Since this local subsidiary in the United States has strictly adhered to one-on-one correspondence, there have been no financial problems. Since then, this local subsidiary has expanded its bases throughout the United States and has now grown to more than 2,000 employees and annual sales of more than $700 million.”

→Even if your venture business grows rapidly, if you are making sales by cheating, you cannot comply with this one-on-one correspondence. In the long term, cheating will inevitably lead to bankruptcy. I think it’s a real example that a company with fraud would not be prosperous for the long-term.

４．One-to-one correspondence with morals

“I thought that satisfying the customer and doing the accounting correctly were completely different things, and that we had to devote ourselves to both missions. It is extremely simple that all the facts that mean moving of goods and money are recorded on slips on a one-to-one basis and processed correctly through regular and standardized procedure. However, a few companies in the world have been doing this. You can easily understand how important it is to protect sound management if you think about the many cases of fraudulent processing and scandals that have occurred in companies in recent years.”

→ I think Mr. Inamori is talking about what is the right thing to do as a human being. I think that if you cannot keep one-on-one correspondence when you respond to a customer’s request, you should show the reason and politely decline that request.

In summary, as to the exchange of goods, services, and money, slips or document records must be accompanied on a one-to-one basis. Mr. Inamori says that it will accurately capture and trace sales and costs, the company should not allow gross payments, and such attitudes will eventually lead to the development of the company.

* 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.