Small Business Money Management
This chapter is largely written for a specific kind of situation, but the author suggests it's worth taking the time to read because "many" business mangers will eventually want to break free from their corporate masters and start their own business.
The most significant difference is that the manager is out there on his own. He no longer has anyone he must answer to (except for reality, which will kick him in the sack) and he no longer has a company full of resources whom he may call upon for assistance.
EN: most of this is about entrepreneurship rather than budgeting. I'll document it in general terms, but probably not in as much detail - he's going off the rails, and tends to be pretty sloppy when he does so.
Estimating Income
A point often overlooked is that income does not derive from activity, but from sales. This is news to many production managers, who have merely had to meet a production quota and were "paid" when products were moved to inventory rather than when they were bought.
Some of the tasks an entrepreneur faces are:
- Identifying customers, and finding a way to reach them
- Providing a product they want at a price they are willing to pay
- Determine purchase and repurchase frequencies
- Determine how to build a customer base
Most companies fail to clear these hurdles - but those that succeed run into other issues that can affect their ability to satisfy the customers they have attracted:
- Production Capacity - When demand grows, you must ramp up supply
- Vendor Relations - Your ability to deliver goods to market is directly impacted by your suppliers' ability to deliver the things you need
- Delivery - It's not enough to create a good, it must be delivered to the customer when they need it
A detailed business plan, accounting fro contingencies, is requisite to success.
Payroll
The author suggests delegating HR services to a specialized firm until the company has grown to the point that it will be more efficient to manage its own payroll. Between taxes and labor regulations, there are too many ways to end up in the stew, and it's best not to risk it.
General Financial Management
Without an accounting department, the entrepreneur will need to keep his own books. The author suggests hiring a bookkeeping service, and scaling up to a full-time bookkeeper when needed.
Liquidity Variances
All companies have variances in cash flow, and this can be a major stumbling block for small business. The author suggests having sufficient financial resources to weather the ups and downs, and a revolving line of credit to help with the gaps.
Setting Prices
This elaborates a bit more on a bullet point from the first section, but the author isolates it to emphasize that price is not merely a function of cost: you must consider what competitors are charging and what the customer will bear, in addition to setting a price that allows you to cover your costs (fixed and variable) at various levels of sales.
Budgets for Proposals
He delves a bit into job-cost budgeting, which is a different kind of task that's more germane to small custom shops and consultancies, where customers want a bid to be qualified by a detailed accounting. He's gone pretty far afield, so I'm not documenting this.