14_Managing_the_Business
Entrepreneurs most often focus on “high visibility” areas of the business (for example: sales &
marketing, customer service, cash flow, and profits). To be profitable and grow, they must
increase sales and/or control costs.
“Managing the Business” focuses on controlling business costs, which requires skillful
management of operations, assets, and risks.
Managers’ key contributions are to plan, organize, lead/direct, control, and evaluate. Some of
these duties include:
Operations include a wide variety of business activities:

Operations Process: creating the product or service for customers
o
o
o
o
o
o
o
o



Purchasing
Inventory management
Production planning and scheduling
Manufacturing
Maintenance
Productivity improvement
Quality management
Information systems
Managing Assets: enabling the entrepreneur to successfully control the daily flow of
resources.
Managing Risks: consists of all efforts to preserve assets and earning power.
Operations Management including both service and manufacturing processes. All
businesses have operations or work flow to be managed.
Managing Assets
Managing assets refers to controlling the daily flow of resources within the working capital cycle
through the company’s working capital accounts. Thus, Accounting Systems and the Working
Capital Cycle are at the core.
Accounting Systems enable the management of cash, accounts receivable, inventories, accounts
payable, and many other transactions or “book keeping” functions.
Working Capital management is managing current assets (for example: cash, accounts
receivable, inventory) and current liabilities (for example: accounts payable, accrued expenses,
short term notes)
Why Managing Working Capital Is Important
Working capital is one of two key tools that enable the entrepreneur to manage the receipt and
payment of dollars.
Cash Budget: a planning document only concerned with the receipt and payment of dollars
The mantra is – cash flow, cash flow, cash flow!
Working Capital Cycle
Step 1: Accumulate inventory for sale
Step 2: a) Sell the inventory for cash (which increases cash) or
b) Sell the inventory for credit (which increases accounts receivable)
Step 3: a) Pay the accounts payable (which decreases accounts payable and decreases cash) or
b) Pay operating expenses and taxes (which decreases cash)
Step 4: Collect the accounts receivable when due (which decreases accounts receivable and
increases cash)
Step 5: Begin the cycle again.
Cash Budget – the single most important planning document
Inflows
Outflows
Cash sales
Payment of expenses
Owner's investment
Payment for inventory
Borrowed funds
Payment of dividends
Sale of fixed assets
Purchase of fixed assets
Collection of accounts receivable
No single planning document is more important in the life of a small company, either in avoiding
cash flow problems when cash runs short or for anticipating short term investment opportunities
if excess cash becomes available.
Example Monthly Cash Budget Estimate
Managing Risk
Risk is a condition in which there is a possibility of an adverse deviation from a desired outcome.
Two types of small business risks:
1. Market Risk – uncertainty associated with an investment decision
2. Pure Risk – a situation where only loss can occur. This is the only insurable risk.
Pure Risks
Examples:
 Property Risk
o Real Property (land, buildings)
o Personal property (machinery, equipment, vehicles)
 Liability Risk
o Statutory liability (workers’ compensation)
o Contractual liability (leases, sales contracts, supplier agreements)
o Tort liability
 Personal Risk
o Premature death, poor health, insufficient retirement income
Risk Management


Risk Control – minimizing loss through
o Loss prevention (eg., contingency planning)
o Loss avoidance (eg., hazard identification)
o Loss reduction (eg., crisis planning)
Risk Financing – covering losses
o Risk transfer (eg., insurance, sub-contracting)
o Risk retention (eg., self insurance)
Homework
Apply the learning from 14_Managing_the_Business to your business plan.