Budgeting & Cash Control

1. Budgeting & Cash Control Maximizing Your Resources

2. Why Budgeting & Infrastructure • It lowers risk by increasing predictability. • Lower risk  Increased valuations. • Budgets speed decision making.

3. 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.

4. 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.

5. 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.

6. Basic Spending Controls • Establish a spending review and approval process: It’s easy to spend money, but impossible to “un-spend” 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.

7. 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.

8. 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!!

9. 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

10. 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.

11. Classic Accounting Errors • Accounting just pays the bills. • Accounting is “black magic.” • Cigar box vs. conversion cycle.