There are three realities concerning money and your business...
REALITY #1: MONEY FEEDS YOUR BUSINESS.
The people who get into trouble in our company are those who carry around the anchor of the past.
Jack Welch, former CEO, General Electric
Think of money as food or nourishment that helps the business grow. You can spend money in ways that “starve” your business in the same way you might feed your body “junk food” rather than nourishing meals. Money should be spent in a way that feeds and nourishes the business. It is best to spend money in ways that help the business to grow and prosper, preferably on something that will increase in value.
The activities that require nourishment in our personal lives change continually, and we have to rearrange our lives to accommodate reality. However, most businesses do not respond in that way. Spending money on specific things or in certain ways becomes embedded in the operation. If a certain amount was spent on marketing or training last year, the same is designated for the current year. The fact that there is a more pressing need or a better way to nourish the business does not enter into the decision.
Questions to consider as review your 2006 budget:
In what ways am I spending money that makes the business healthy and strong?
In what ways am I spending money that weakens or sickens the business?
REALITY #2: MONEY FLOWS LIKE A RIVER.
The most important thing is to deal with reality, not with custom.
Philip Crosby, former Vice President of ITT
It is important to focus on “cash flow.” First, where does the money come from? There are several “revenue streams” that come from selling your products and services. These “streams” combine to provide the total inward cash flow of the business. One thing to consider is increasing your capacity by acquiring more “revenue streams” that add to the total cash flow.
Second, where does the money go? Think of the Colorado River that winds through Southern California and Arizona. Every drop of water is committed to do something for someone. The stream is treasured, controlled, measured, and fought over. If the snows are not up to expectations, the water flow is less and someone must suffer. Good financial management is spending the money, using the water of the river, for the most important reasons.
Questions to consider as you analyze your money management system:
What are the current and potential “revenue streams” for your business?
Is there a better way to keep track of where the money goes?
REALITY #3: MONEY MUST BE RESPECTED.
The budget evolved from a management tool into an obstacle to management.
Frank C. Carlucci, former U.S. Secretary of Defense
Your physical body relies on food and water to survive. In the same way, money feeds and waters your business. First, respect money as an essential means of reaching your vision, creating the business you want to create. If you do not feel strongly about your vision, you will likely expend money in ways that delay or destroy your vision. An athlete respects the need for nourishing food and exercise. You must exercise disciplined control over money in order to create the business you envision.
The second challenge is to teach your staff to respect money. Most wasted money is on finding errors, doing things over, or poor quality work. You respect the use of money when you ask for, train for, and inspect for quality work in your staff. You can lift respect for money by using the “allocation” rather than “budget.” Budgets set a limit on what can be spent; an “allocation” aims spending at producing results. An “allocation” is outcome-oriented with measurable targets.
Questions to consider as you plan your budget for 2007:
How would you change your spending if your first priority was your vision?
Rather than just “controlling” spending, how can teach respect for money?
Copyright (c) Richard Leslie Parrott, Ph.D.
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