Business Acumen
What You Need to Know

If you work in a "for profit" business, I have no doubt you have already experienced the "business acumen" talk. And, if you are like most people, you have left that conversation feeling confused and perhaps a little inadequate.

The talk goes something like this. "I would love to give you a raise but you need to demonstrate more business acumen." Huh?

Well you are reading the right page. Read on!

So what the heck is this business acumen thing? Well obviously it can mean a lot of different things to a lot of different people but I am going to cover off a few of the basics to get you started. The point here is to provide you with enough information that you feel comfortable in asking questions at work.

First of all - you don't need an MBA or anything like that. What you will benefit from is some basic terminology, a few fundamental economic principles, some basic business know how and a little bit about financing and stock markets. Now if you read the newspaper, you are already familiar with a lot of these things so don't worry that this is complicated. It isn't. It is just a different language.

So a lot of the terminology you will need, you will pick up as we go through some of the basics. Let's start with a fundamental economic principle.

The Law of Supply and Demand

Okay the first economic principle you need to understand is that of supply and demand and the impact it has on pricing. Most of our consumer economy is based on this simple principle which states that when supply exceeds demand, then the price will fall and conversely, when demand exceeds supply, then the price will increase.

Undoubtedly you have seen this phenomenon many times. When some new and highly desirable product is released into the market and is in short supply - let's say the latest sports car for example, then dealers will often mark the price up.

WHAT? Can they do that? Of course they can - it is a free market economy. If there are fewer of these sports cars available than there are customers who are interested in buying them, the perceived value of the product goes up and thus so does the price.

Now this is where things get interesting. So the supply is lower than the demand and dealers are charging more than "list" price so the profit margin on those sales is higher than expected. The manufacturer sees the increased profit and so decides to make more of these sports cars. As that happens supply catches up with demand and soon dealers have lots of these cars available and are selling them at "list" price.

Keep in mind that the time cycle here can be very short or very long depending on what kind of product or service we are talking about.

Now the car manufacturer is producing these cars hand over fist and soon - well - you guessed it - there are way more cars available than there are people interested in buying them. In other words, supply exceeds demand and then in order to move those cars off the lot, the dealer has to sell them at a discount or for less than "list".

The lower price opens up availability to more people and thus (at least in theory) more cars leave the dealers lot. Notice however that the profit margin on these vehicles is now lower. In other words, the difference between the sale price and the cost of the vehicle to the dealership is less than it was.

In a nutshell this is the principle of supply and demand economics in a free market economy.

Corporate Finance, e.g. The Capital Markets, Bonds etc.

The other key area that is worth knowing about is that of Finance and how to raise capital.  In other words, if you are starting and/or building a company - how do you get the funds necessary to make those initiate investments?  This is where the capital market comes into play.  To learn a bit about Finance, click here.


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