This last week the Business Literacy Institute taught at the United Nations. We paid a visit to 48th Street and 1st Avenue on the Hudson for a little financial intelligence training. The weather in New York was perfect. In fact, on the morning of the class I woke up early and did a nice run around central park. It’s a perfect 6 miles around with a few good hills with a mile to the park and back from the hotel. The run was great and the temperature was perfect starting at 6:30 am.
The visit to the UN was great. It turns out I was working with a group of purchasing and sourcing managers. We were referred to the UN through the World Bank Sourcing group we trained last year. It turns out that the sourcing folks need finance training. The business managers spend a lot of an organization’s money on long-term contracts with suppliers. Getting the right product for the right price is important. It’s also important to work with vendors that are strong financially and can complete the required work. That is where we at BLI come into the picture.
While it is great to save by working down the price with these vendors, there is also the problem of a vendor failing to deliver key products or services to an organization. It turns out that the UN provides shelter and provisions to peace keeping troops through these outside suppliers. If a vendor fails to provide these key services the UN ends up with major problems at critical times.
It is very important that these sourcing mangers know how to assess the financial stability of a key vendor. We learned in class that probably the most important statement to look at for this is the balance sheet. Sure we need to check the income statement to ensure a vendor is making a reasonable profit, but if the supplier has a weak balance sheet as indicated by such ratios as the current ratio and the debt to equity ratio the UN might want to think twice before letting out that contract.
An interesting question came up in class. How do you evaluate small private suppliers that do not provide financials? I suggested in that case requesting some key financial ratios and numbers like annual revenue, net profit margin percentage of revenue, the current ratio and the quick ratio. Furthermore asking for a banking reference, legal reference, and other customer references can be helpful too.
As with many of our customers, the UN requires that vendors have audited financials. This is a good policy but I helped them understand that just because you have audited financials does not mean they are accurate. Think about companies like Enron and WorldCom which were fully audited and publicly traded businesses and we discovered that their numbers were completely false. I like to say that when you look at a company’s financials you are also looking into the competence and the integrity of the management team of the business. So knowing the reputation and the history of a business can be just as important as an audit.
I had a great trip to New York this time around. The only thing I regret is not making it to the Thursday evening session of the US Open Tennis Tournament. I bought tickets at the last minute to go only to find out they were for an earlier session right before I jumped on the subway to go. At least vividseats.com refunded my money and apologized but after sorting that out it was too late to find some more tickets.