Anybody_s Business
By Barbara Van Syckle
Email: Richard@qwconsultancy.com
Chapter
1
Financial Intelligence | Chapter 1: Profit
Chapter 2: Build
Chapter 3: Compete
Chapter 4: Adapt
Leadership Vision Management Perspective Marketing Savvy Tech Insight
Profit: Open Books,Cash Flow, and Income
BizSkills invite... Try It! There's no better way to learn concepts than to put them into practice. Take your turn in the driver’s seat and be a part of actual business decision making by visiting the BizSkill for this chapter at www.mybizlab.com.
TEACHING TIP The BizSkill for this chapter, OBM and Financial Statements, asks students to play the role of a restaurant owner and walk through the main ideas behind the three major financial statements covered in this chapter and the next. See p. 7 of the Instructor's Manual for more information.
Chapter 5: Grow
3 Now that you’ve practiced making tough business decisions and seeing the results of your choices in this chapter’s BizSkill, it’s time to translate those skills into plain English. And if you skipped the BizSkill,
Chapter 1 Goals After experiencing this chapter, you’ll be able to: 1. Explain why financial statements matter to businesses and the people who own them, manage them, and work in them. 2. Recognize cash flow and how to interpret a cash flow statement. 3. Recognize profit and how to interpret an income statement. 4. Examine how businesses and people make decisions based on their impact on cash flow and profit. 5. Understand four perspectives in business: the BizHats.
What does it take to make profits grow?
TEACHING TIP Whether you prepare a lecture or discussion, consider building your class around questions that will serve as the basis for that day's workshop. Turning the chapter learning goals into questions is one easy way to frame the workshop.
The Big Game of Finance Imagine this: It’s the end of the big game. You and your team have worked hard all season to get to this point, but now the whole season is riding on you. Your team huddles together to discuss the last play. You look to the scoreboard to help guide your strategy, but wait—the scoreboard is missing! Are you ahead? Are you behind? How much time is left? What’s going on? You try to tell yourself it’s OK, but how can
you plan a strategy to win if you don’t know where you stand? The game of business is no different. If you don’t know where you stand in an organization or where the organization stands in the market, how can you win? If you don’t know how to win, you’re really just going through the motions of doing whatever it is you’re doing without having a real focus. In this chapter, we’ll start our discussion of business by looking at a company’s scoreboards and why they matter.
Lesson Plan Activity 1.1: Build the Anticipation: Missing Scorecard Video or Word Cloud Open the class by having students watch the Missing Scorecard video or create a word cloud. See p. 3 of the Instructor's Manual for a full description of this activity.
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Financial Intelligence
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1. How Financial Statements Matter... And Not Just to
the Boss
Every organization has scoreboards that let people know what’s going on. These are financial statements: the cash flow statement, the income statement, and the balance sheet. Financial statements act as scoreboards because they summarize the financial information for a company during a given period. They are used throughout a company to drive many decisions, such as how much money to invest in different reWho is winning this game? sources and in hiring new employees, among others. Financial statements let managers and others know where a company has been, know where it is now, and help anticipate where it’s going. But what do financial statements have to do with you? By the end of this chapter, you’ll know just how important understanding these statements can be, both to you personally and to you as a current or future employee. Let’s start by looking at two important factors at play in our discussion: standard of living and quality of life.
Your Standard of Living and Quality of Life Quick question: What’s the difference between your standard of living and your quality of life? Is there a difference? Your standard of living is defined by many factors, but essentially it’s based on tangible things such as how much money you make and what you can afford to buy with that money. For example, if you make enough money to have a nice home, buy nice things, and go out whenever you want, you have a high standard of living. On the other hand, if you struggle from paycheck to paycheck to get your bills paid, you have a much lower standard of living. Standard of living is also based on how much money the people in your community make and how much they can afford to buy, which affects the quality of goods and services available for you to purchase. For example, U.S. residents on the whole enjoy a high standard of living compared to citizens of some countries who can’t afford indoor plumbing or electricity.
Lesson Plan Activity 1.2: Identify the Payoff: Standard of Living vs. Quality of Life Get students thinking about what's in this class for them by asking them to consider what affects their standard of living and quality of life. See p. 3 of the Instructor's Manual for a full description of this activity.
However, even if you have a low standard of living, that doesn’t mean you don’t have a satisfying life. Your quality of life is an expression of the intangible aspects of life, such as having plenty of leisure time, having good relationships with family and friends, feeling fulfilled and safe—in short, your well-being. There are probably people living off the land in a Central American jungle who are more satisfied and content than some millionaires living in Los Angeles. Money doesn’t necessarily improve your quality of life. How does this discussion on standard of living and quality of life tie into a discussion on financial statements? Imagine this: The economy is struggling, companies are closing left and right, but for some reason your company seems to be doing well. How can you take this financial information from your workplace and apply it to your personal life? Well, first off, you can see that with so many companies closing, the economy is on shaky ground. Because of this, you may take extra precautions and start budgeting your finances more and cutting back on unnecessary spending. Just because your company is doing well, you never know what might happen in the future. Adjusting your standard of living may be a good step to take, and doing so may also improve your quality of life. Since your employer is doing well, you’re not worried about losing your job, and you feel good about saving more money every month. Basically, because you’re aware of your company’s finances, you’re able to translate that into your personal life and be more secure about where you stand.
Chapter 1
| Profit: Open Books, Cash Flow, and Income 5
Translation Guide In Conversation: The terms standard of living and quality of life are sometimes used interchangeably in conversation. Although the terms are somewhat related, they do not mean the same thing.
TEACHING TIP You might want to have students create Translation Guides while they study/read the chapter and bring them to class or post them on a discussion board to share.
In Business Terms: Standard of living and quality of life both affect how we live, but they affect different aspects of our lives. Standard of living is generally measured by consumption, or how much you can buy, whereas quality of life is generally measured by your feeling toward life, or how content you are.
Example: A person who makes less than minimum wage and lives in a small apartment may have a low standard of living, but if that person is content with his or her situation and is in good mental and physical health, that person probably has a high quality of life.
The Importance of Understanding Financial Statements Understanding financial information can personally help you in other ways, too. For example, you can make wiser investment decisions. People who don’t know how to read financial statements may invest in a company that isn’t doing well. Just look at investors in the financial services firm Lehman Brothers, which filed for bankruptcy in 2008. After that debacle, many people were left scratching their heads and asking, “What happened?” Chances are not many investors could tell you what went wrong. Lehman Brothers was a huge publicly traded company, meaning a company that issues stock available for the public to buy on a stock exchange or other markets, so by law its financial statements were available for the public to review. In fact, most financial statements from publicly traded companies like Lehman Brothers are available in an annual report—a description of a firm’s financials, which is distributed to all people who own stock and is typically available through a firm’s Web site or other public postings. However, what’s not readily available is the knowledge to interpret the meaning of that financial information. A savvy investor can interpret financial statements not only to determine the current state of a company, but also to predict how the company will perform in the future. In the case of Lehman Brothers, an educated potential investor could have reviewed the company’s past and current financial statements and discovered that the firm had a lot of funds invested in home mortgages, a market that was very volatile at the time. That cautious investor could have then understood that investing in Lehman Brothers would be a very risky venture and would therefore invest his or her money elsewhere. Likewise, if the Lehman Brothers shareholders, who were already invested in the company, would have interpreted the financial statements well and had a clear understanding of the mortgage market, they may have demanded different investment strategies from management, or perhaps they would have sold their shares and bought different investments.
What If There Was a Better Way? Open Book Management In 1983, a small group of employees found themselves in a situation in which the owners of their company were facing bankruptcy. The owners offered the company for sale to this group of employees, and the group took the owners up on the offer and bought it. With a company swimming in debt, the new employee-owners decided to try something different. They felt that to make a turnaround, the entire attitude of the company would need to be altered—a culture shift. They asked themselves the questions, “What if all of the employees understood the company’s finances? What if all of the employees had input and a stake in the success of that company?” The company was SRC Holdings, headed by Jack Stack. The employee-owners didn’t just ask these questions, though, they actually followed through on them and opened the books to all employees, not just those at the top. By doing so, the employee-owners wanted to give everyone an opportunity to review the financial numbers, see how their performance affected those numbers, and suggest ways to improve them. This policy of giving employees access to financial statements and information is the model of open book management (OBM).1 OBM is one method that companies use to help employees connect their individual jobs to the overall success of the company.