What is the Owner's Job? Part 1
What is the job of a business owner? That is a short question with a seriously long answer, so this is part one of four. My first answer is that there’s NOT a job for an owner, but there is for the person running the business.
I’m sure some are saying how can anyone do that? Well, you can’t for sure. But you can assume your sales are going to be what they have been (assuming no downward trend) and you can assume your direct materials percentage will be the same. Then you can plan your wages and overhead accordingly. Then plan for the amount you will take out of the business, protect your working capital, plan for your educational and retirement funds, and then decide how much you will spend on equipment acquisition.
Okay, so we can’t be 100% positively and absolutely sure. So, we have to deal with probabilities, maintain a strong current ratio and protect ourselves from the downside risk.
A printer in Iowa has 13:1 current ratio, 92 days cash on hand and has been growing on average over 10% per year for the last three years. His income before owner’s compensation was 34% last year or $160,000 on some $480,000 in sales and actually took out about $113,000 for the family.
Problem was: he was working himself to death. So his budget based on his current sales level finds him projecting for less IB4 Owner next year so he can hire someone to help out with his time problem. But even here, he did not plan to spend more than he projected he would make. He is planning to maintain his current level of withdrawal on the same level of sales and end up with basically no net income. He’s planning to spend it.
That’s okay since he has a strong current ratio and – here’s the gamble – the probability is very high that the move will allow the company to actually increase sales during the period and not only pay back the income he is planning to spend but actually gain more. If it doesn’t work, well the downside risk is minimal. Everyone in his Performance Alliance group felt very confident about the budget and his ability to meet it.
Contrast that with the budget of a first time California participant. He has a 0.6:1 current ratio and 4 days cash on hand. He had sales of $1.8 million in 1999 and he’s projecting $2 million this year based on the first three months and has been growing at a rate of 13% per year for three years.
His budget is based on the $2 million of sales, he’s planning on spending about $100,000 more in wages than he spent in 1999 and his overhead is planned to increase $50,000. That means his IB4 Owner of $100,000 last year (5%) is projected to be $100,000 this year. Of that, about $30,000 will be left in the business to correct his working capital deficit, which at this rate will take about ten years to rectify. Perhaps after six months of trying to actually meet this aggressive budget, he might be in a better mood to actually fix his problems by making money where he is. But then again, he may do better. Everyone in his Performance Alliance group felt the budget was very aggressive.
Okay, so the general manager’s first job is to make and meet all budgets. To learn more about the budget process, go to our web site at www.crouser.com and search for the topic “budget” in our search engine. The question raised was what was the job of the general manager? The first part of the answer is to make the budget.
Now, the general manager must also actually meet the budget. If you say sales will grow 20% and you’re spending all of it – then you darned well better meet it.
How do you meet the budget? Three steps generally – I’ve called them the gettin’s. You’ve gotta get jobs out, get jobs in and get paid. And these steps take us deeper into the organization of a print shop. Again, we are focused on the general manager.
So, it’s the general manager’s job to make and meet all budgets. The general manager also has some other duties as well – prime among them is the maintenance of organizational discipline.
The general manager is also responsible to report to the stakeholders about the progress of the business. For most of the boys this means actually talking to the spouse about the issues in the business. And we’re responsible to be pro-active in doing so. It is not a threat to our manhood that the spouse is concerned about finances. Everyone needs to know where the car is going and what road we are going to take. Additionally, we need to add some conflict resolution training here for everyone. And I’d add the old marriage-counseling rule – those issues that aren’t resolved by the stakeholders don’t get done.
