Business acumen is a term used to describe a person’s understanding of the business world and how it works. It doesn’t mean that you need a finance degree or that you have experience in the corporate world.The founder of FTX showed us that in recent months and that maybe he didn’t have business acumen after all. This term is used when people in the business world understand key concepts of supply chains, cash flow, margins and return on investment. You don’t need to be able to write a business plan or know how to create financial projections, but being able to understand what those things are and why they’re important will help you get hired by employers looking for candidates with a strong business acumen.
What is business acumen?
The ability to understand business issues and make sound business decisions is the definition of business acumen. This includes understanding the financial implications of business decisions; understanding how organizations compete in their markets; understanding the impact of business strategies on different parts of the organization; and knowing how to forecast where “the puck” will be in a few years’ time. Investor types, bankers and people who are good at running their own businesses have this skill and it’s just as important, maybe even more so, when you run a sustainable business.
Candidates and basic financial skills
If you are on the side of the desk that is hiring for business, candidates should be able to demonstrate some basic financial skills. Examples are reading and interpreting financial reports, understanding financial implications of your decisions and communicating financial information in a clear and concise manner. Can this person present end of quarter results or will you have to do it?
Business acumen counts in hiring and success
The best candidates in any job are those a strong grasp of the idea of business acumen. This is particularly true in areas like accounting and finance, where the ability to understand financial statements and make decisions based on them can be crucial to success. However, it’s also important for all types of positions at all levels of management. The ability to understand how businesses work and apply that knowledge in their own work will be valued by employers looking for great employees who are ready to succeed in their careers. This is true for engineers in solar energy businesses just as much as the people in accounting in the office upstairs.
If you want to get hired, you need to talk the talk
A clear example of this is how a specific term has become prevalent in the workplace. The word “burnout” has been thrown around so much that it’s now synonymous with work stress, but many people don’t know that the origin of this word comes from medicine and psychology, not business.
In fact, if you want to get hired or advance in your career, knowing all about the day-to-day jargon used in business can be crucial. This is difficult for new immigrants or executives who have moved to the United States from Europe. So consider a few tips:
Know what you’re talking about. You don’t want to use jargon when it’s not appropriate or even when you don’t understand what it means. One sentence can be funny, but used in the wrong way can be insulting.
Don’t overuse words or phrases just because they’re popular at work. If every other person uses them too much and doesn’t know what they mean either then why would anyone else care? It will only make them look foolish if they do so as well. How many times have you heard the word wheelhouse in the last few years in New York? It’s so over-used that it can be an annoying expression to someone looking for someone with marketing know-how on the edge of innovation. If you are unsure, don’t use jargon.
Do you know performance drivers and scorecards?
Performance drivers are metrics that highlight the main factors that affect a business’s success. These include customer satisfaction, employee retention, productivity and morale. A good example of this is if you are in the business of online marketing and metrics and SEO is knowing what are Google’s Key Performance Indicators (KPIs) which include page views per minute and bounce rate as well as its more traditional financial metrics like net profit margin, revenue growth and return on investment (ROI). These are basics that anyone in any internet business should know.
A scorecard is an overall measurement of how well an organization performs against its goals. It’s used alongside benchmarking and can be used to measure any aspect of your business – staff performance or customer satisfaction for example – but the most common use is when it relates to profitability or sales figures.
Margins and contribution margins
Do you understand the difference between margins and contribution margins? Margins are the difference between revenue and cost, whereas contribution margins are the difference between revenue and variable costs. Contribution margins can be higher than margins because fixed costs are already subtracted from total expenses when calculating a firm’s bottom line
This means that while it may take $50 to produce one unit of product, let’s say a DIY solar panel, if you sell it for $100 then your contribution margin is 50%. Contribution margins can also help you calculate break even points by dividing total sales dollars by zero (the point at which a company doesn’t make any money), which equals 100%. In other words: if your company makes $250 per week in sales then its break even point is 250/0 = 250 units sold; after selling over 250 units this week we’ll still be losing money.
Value-added and non-value added activities
The word value-add is thrown around a lot in boardrooms. Understanding the ‘“real” difference between value-added and non-value added activities is crucial. Value-added activities are those that add value to your customers. Non-value added activities are those that don’t add value to your customers, or at least not enough for them to pay you more for doing it. The more value you can add to your customers, the more they will pay you (and therefore how much profit you make).
Let’s say I’m a barber in Brooklyn and I charge $20 per haircut – but when I ask my non-bearded customers, if they want a shave with the cut, they’ll say no because they think it costs too much money – $5 extra dollars- even though there’s no real reason why they can’t afford it because their income bracket is higher than mine.
But another business owner down the street charges $25 dollars per haircut plus a free shave after every time he finishes cutting hair and for the same money the clients accept the offer. It “seemed” like a better deal and had added value.
Getting hired among the competition
If you are one of the thousands fired from Facebook or Twitter, demonstrating business acumen can set you aside for future promotions once you get hired. This skill shows you have the ability to understand how a business works and how it makes money. It’s about being able to see the big picture, identify the drivers of success, and determine where your company needs to go next.
The first step in building your business acumen is understanding that there are three distinct areas: strategy, operations (or management), and finance. Strategy focuses on defining the company’s objectives and developing strategies based on those objectives; operations refers to making day-to-day decisions based on those strategies; finance involves measuring whether or not these decisions have been successful—and then refining them accordingly if they haven’t been successful enough.
If you want to get hired, you need to talk the talk. Business acumen is a significant factor in hiring decisions and can help set you apart from the competition. It’s also important to understand margins and contribution margins. Know about the differences between value-added and non-value added activities, as well as performance drivers and scorecards.