By Tom Crouser
So what’s my job as business owner? Makes my head hurt. Wrapped up in one short question is one seriously long answer. So, this is part one of four and my first answer is that there’s not a job for an owner. There is for the person running the business, however.
Ownership is a passive verb. If you own stock in General Motors, you have a right to a return on investment and you have a right to expect your management will focus on increasing your shareholder value. In our kinds of businesses it is no different. You may own a car but that does you little good until you take on another role – the role of driver. Same is true with our businesses and the refusal of many business owners to actually drive their car is a root cause of many problems.
Let’s begin by looking at ownership. Do you really own your business? Some boys like to departmentalize their life. They say, “This is my business and I’ll do darned well what I please with it.” Hmm... Get a divorce and see how much of it you own.
Some girls in a supportive spouse role also want to departmentalize – I don’t care what he does with his business, I’ve got a career of my own. Hmm... Let him buy a five-color press he can’t pay for and let’s see how independent from the business you remain. Even children are involved. Growing up on the family farm is different than growing up in town and we are today’s equivalent of the family farm. When the fences are down and the cows are out, everyone is affected.
Point is that you must start with the premise that we don’t have stockholders in our kinds of businesses – we have stakeholders. And regardless of whose name is on the stock certificates – all will share rights and responsibilities. Therefore the concept that there is one job description for a business owner doesn’t hit the mark because it assumes there is one business owner and there is not – the family owns the business and each member has a slightly different but similar role as stakeholder. Essentially though the job description is similar to any other stockholder – the owners have a right to a return on investment.
Because we are not General Motors, however, we define this more precisely. Stakeholders have a right to a return on investment in both time and money. The litmus test is the family should have more time together as a family and more money because we are in business, not less. And if this is not happening, then it must be fixed or we should just shut it down and get a real job.
Now to the organizational question – stakeholders select one person to actually drive the car – or run the business. It’s not two, it’s not a committee, and it’s not by consensus. One person has to steer, dodge the potholes and decide when to speed up and when to brake. That’s not to say there will not be disagreements or challenges, especially between spouses working together. It simply means that these disagreements should be stakeholder disagreements and not operational ones.
We can obviously disagree on our destination. We can obviously disagree on whether to drive all night or hit a rest stop. We can even disagree on whether we need a new car or not. In an organized approach, we just keep these disagreements off the shop floor. And, remember, that doesn’t mean the driver has absolute power. Others may see dangers and bring them to the driver’s attention. This process of stakeholder agreements and conflict resolutions is another chapter, so allow me to get on with the question at hand.
What’s the job of the person running the business or driving the car? That’s simple. The job of the general manager (president, CEO or whatever you want to call them) is to “Make and Meet All Budgets.”
In budgeting we decide what our sales and expenses are going to be in the future. We decide how much we will take out of the business and we will decide what we do with the remainder.
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.
If you want to buy a press and the spouse doesn’t agree, then it’s not all right to buy the press anyway. Remember, if we were running a real company then we would have a real board of directors requiring us to perform.
So, the first answer to our friend’s question is that the general manager’s job is to make and meet all budgets. In addition to this, the general manager is responsible for organizational discipline and oversight as well as reporting progress to the stakeholders. The general manager is also responsible for recruitment and retention of workers and oversees the three functional areas of the business – production sales and finance. You’ll find out more about these duties in our next installment.