Capital Budgets: a real board of directors would require us to also have a capital or strategic budget. This one would be based in knowing our customers, which we can’t do if we haven’t been in their office in the last four months. It would identify capital opportunities (that new press) and compare and contrast with all the other capital opportunities we have including leaving the money in the bank. It would require we set milestones as we cautiously proceed (get a certain number of contracts before we buy the equipment). A board would also measure our performance against this plan and not allow it to proceed if our milestone hurdles were not made.
Report and Communicate: you think when your spouse broadsides you with a business question that it is difficult now? Wait until you sit in front of a real board. A real board would demand you fully report variances to the plans (budgets) without excuses – and along with the actions you plan to correct the variance. Real boards don’t like surprises – good or bad. They want you to be focused, to know exactly what you are going to do and what the results will be – and then they want you to do it.
So, this whole concept of running a real business based on real business principles is no picnic. It is extremely important and, if an owner wants to run their business “like” a real business – then these are just some of the performance issues to consider.
What’s an Owner’s Job?
Now let’s answer the question. The owner doesn’t have a job – they are stakeholders. There is a job for the person who is running the business however.
Stakeholders have a right to a return on investment and they do have an obligation to be supportive, but they have no job or a right to a job. Companies are like cars. One can own a car, but to get use out of the car, someone has to drive it. Likewise, someone – usually a stakeholder and commonly a founder – steps up to the responsibility of General Manager (CEO, president or whatever) and drives the business. Now that’s a job.
That job is to make and meet all budgets, which begins with making one. Making a budget not only includes making an operating budget consisting of sales and the anticipated expenses of direct materials, wages and overhead. But it also includes a capital budget with plans for the amount that will be taken out of the business, the amount needed to protect working capital, the cash for educating the kids and retirement and how much to spend on new equipment.
The flip side is the General Manager has to meet all budgets. Doing this we have to get jobs out, get jobs in and get paid – or operations (production), sales and finance. And if anything is off budget is happening – meaning a variance from the plan – then the General Manager has to be courageous enough to fix it if it’s bad – and witty enough to enjoy it if it’s good.
Additionally, the General Manager is responsible to communicate the progress of the business with the stakeholders of the business – before they ask.
The General Manager, however, isn’t a full time job and must take responsibility for one of the other two prime functions – production or sales. They can do finance, but not as a primary responsibility for finance is clerical in nature. We need a person involved in the business to run the business. So, the General Manager of a business will also spend most of their time with their secondary job – production or sales.
The General Manager is also responsible for discipline and oversight. Discipline is doing what is most important, not what’s most fun. Oversight is seeing that everyone else is also doing what’s most important, not what’s most fun.
The General Manager is the person who is primarily responsible for recruiting and retaining workers. We put this at the General Manager’s doorstep since this is the person who most frequently runs workers off.
The General Manager plans and oversees the company’s sales and marketing efforts, even if they are in the additional role of production manager.
Specifically the general manager maintains a personal relationship with the company’s top 25 accounts that usually provide 50% to 75% of total sales. So, no salesperson can take the place of the general manager with these accounts. Salespeople can assist the general manager, however, but not replace them.
The general manager’s role in price is that of chief negotiator for the business. The general manager’s role in finance is to oversee – decide what bills to pay perhaps, but not to write the checks.
And the general manager’s job also is to see that the business performs.