Budgeting & Cash Control
Maximizing Your Resources
Why Budgeting & Infrastructure
It lowers risk by increasing predictability. Lower risk Increased valuations.
Budgets speed decision making.
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What to do FIRST!
ESTABLISH QUANTIFIABLE OPERATING GOALS. (Spending and headcount levels are not goals!!) Create an investment and operating plan to achieve goal! (This is needed for first round.)
All development is a HIGH risk investment. All Infrastructure is an investment that can be “time phased”.
Correlate the investment and operating plan to estimated overall cash outlay.
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Basic Control Infrastructure
Utilize project management software to specify milestones and timeframes. Establish a simple, small accounting system.
(Initially use off the shelf packages, avoid enterprise packages.)
Prepare an operating budget!!! Outsource specialized infrastructure tasks as much as possible until revenue. (e.g. payroll) Stay close to the action. Only after processes are in place and tested can you step back.
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What goes into a budget
All budgets are financial models of the operating plans within the business. All assumptions should be documented Budgets should be monthly for at least the first six months. All employees and new hires should be individually budgeted. All capital equipment should be included. All expenses should be tied to activity levels. Monthly validation.
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Basic Spending Controls
Establish a spending review and approval process: It’s easy to spend money, but impossible to “unspend” it
Review and approve all spending at appropriate levels.
• CEO (and management) set the spending example! • Don’t assume anything. Ask, “Why do we need this now?”.
Document approval process (on-line or hard copy) Defer spending whenever possible
Avoid recurring fixed costs, rent if possible. CEO or COO should initially sign all checks. Get competent outside accounting help! Don’t use Expense Reports for procurement.
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Spending Control Documents
Basic Forms
New hire authorizations. Wage or Salary adjustments approvals. Purchases Requisition & P.O.’s:
• Capital Equipment • Supplies • Inventory
Optional Forms
Travel Authorizations (limits “road trips”) Capital equipment lease/buy analysis.
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Timely Reporting to Plan
Know how much and on what you’re spending. Differences to budget must be explained!! All numbers tell a story! The story is always supported by the numbers. There are no excuses, just root causes. Corrective action is more effective if implemented earlier. DEAL WITH IT!!
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Monitor Development Costs
Think Specific, not “Big Picture” Define “development” as achieving core operating competencies with controls.
Product development Brand Franchise Customer or installed base Financial Control Infrastructure
Measure results to plan!
Milestones vs. dollars spent. Process effectiveness and efficiencies
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Classic Control Errors
Keeping it all in your head. Sunk cost errors in investment. Spending in anticipation of orders. No exit strategy. It’s just business! Oh well, this won’t make or break the company.
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Classic Accounting Errors
Accounting just pays the bills. Accounting is “black magic.” Cigar box vs. conversion cycle.
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