Well here I am. Chapter 7, the second last chapter and getting close to the end of my first term at uni. What a fantastic and turbulent ride it has been so far. I have learnt so much, unfortunately forgotten so much, then relearnt so much and now I am reading the intro to this chapter and thinking about my goals and my dreams. Martin says that managers need to communicate their plans, objectives and dreams to others in the firm. That they need to bring others along for the ride. Well this can be applied to any situation in life, and in this case my firm is my family, and my Partner and I are both the managers. I have recently got engaged to my wonderful, amazing and beautiful girlfriend, now my fiancée. She is currently stuck overseas right now due to the Covid pandemic. We have been apart since the borders closed. It’s been hard being separated from my loved ones, but we talk everyday and as strange as it may sound, we have gotten closer during this time. One reason why I feel we have gotten closer is because we talk about our goals, our objectives and our dreams. I know what she values and what motivates her, and she knows what my goals are. I want good grades at Uni, to find a very suitable job once I graduate and to buy a nice house (probably a duplex so we can rent the other side of the house) where we can raise a family together and never be apart again. My goals and dreams are aligned with hers. This is why we have become closer. We are both very determined about our dreams, our goals, and also about how we feel about each other. We have communicated this to each other, and we are bringing each other along for the ride. I like applying some concepts of business and accounting to my everyday life, it’s all about growth. Whether I learn about topics such as deep learning or budget accounting, the more I learn, the more I grow.
Understanding the topics about how budgeting can help makes perfect sense to me. Martin discusses how budgeting can help with planning, coordination, communication, delegation and accountability, and all these terms I’m very familiar with. Coming from a management background we always had budgets. We had yearly budgets, bi-annually budgets, monthly budgets, weekly budgets, and daily budgets. These budgets were communicated across all aspects of the business to various people in various forms. From sales-persons to managers to Stores and Areas, everything had a budget, and everyone was required to know what their job entailed or what their targets and budgets were in order to be successful in their role. Martin talks about participative budgets and his time at Donaghy’s, and how various firms would be involved in the budget process and this is very similar to my old work environment in setting sales budgets. At VTG (my old workplace), Managers would usually be required to attend participative budget meetings, this was so they could be engaged in keeping track of their budgets and targets and also be aware of their future profitability targets. If managers are aware of this and also involved in what their EBITDA target is, then they will be motivated and more likely to succeed and start planning. Accountants, Area managers and the General Manager would also attend these meetings. These meetings were very important and by having a diverse group of people, engaging and discussing targets and budgets, everyone was able to agree on a set of numbers that they felt were achievable and profitable. This wouldn’t be the first meeting nor the final set of numbers. No, it would usually take the first meeting where the draft numbers were set. Then this would be given back to the CEO and board of directors with the accountants who also had their expectations. Once the BOD agreed on their numbers, it would then be distributed back to the managers who would once again be able to make changes or agree and then send it back for final approval to the BOD and accounting team. A very similar process to Donaghy’s.
The company I previously worked for never struggled that materially with target setting and communicating its goals. However, the one area that the company did struggle with was cash. It’s interesting to read about cash budgets and purple chocolates. Purple chocolates at the end of April had 825K in negative cash and then it started to decline due to the credit sales done in March. I understand the concept about having an overdraft facility and having a little more just in case, it makes sense. It helps the company continue to run and to pay its suppliers (liabilities) for future ingredients for future sales.
Accrual accounting is like a layby where the item doesn’t get added to the sale process until the customer has the actual product. But in this case, the customer has the product, however, hasn’t paid for it, only committed paying for it. As the customer has the chocolates, I imagine the goods would be invoiced out and credit is most likely provided to these customers because they have an account setup with the firm. (Account terms like must pay for goods within 60days etc.) There would also be a process involved in setting up an account such as paperwork and credit checks etc. In the end the customer will take the goods after supplying a purchase order (depending on the account terms and requirements) and then pay at a later date. Because they have the goods, the product is invoiced out and added to the total sales. But they still haven’t paid. This is why a company can make profit but still lose cash. It makes sense to me why cash budgets are done and how important they are. Seeing as the only way a company can go broke is if they have no cash, It’s very important. In my old firm we used to sell computers to schools and universities. Universities didn’t pay upfront with cash; they would pay within their account terms after they received the goods. My company had a cash flow problem and so they changed their terms from 60 days to 30 days. When we shipped computers to universities (could be anywhere from 25 up to 1000) we would invoice out all the computers once they received the goods. Then we would wait for 30 days for the payment to be made as per their account terms. The sales associate responsible for the selling of the goods didn’t have to wait for the payment to be made by the university to receive the revenue under their sales code. This would be attributed to their sales targets and would get applied immediately upon invoicing out for the following day. ( at end of day, all accounts would be uploaded to Cognos and then data, receipts etc would be applied ) The sales associates were responsible for following up payments with their customers and let me tell you there were many customers that did not pay on time, Universities included (even when account terms were 60 days). As the overdraft facilities were overdrawn, the number of products we could order from suppliers for the stores got smaller and smaller which greatly affected walk in sales. This sent a viscous cycle of the company not being able to order more products for the stores due to having less cash to pay the suppliers and less products to sell in stores. (in this case, not every one of our suppliers gave us account terms either, some required cash to be paid for first before sending the item, which is why having backup cash is important for all companies) In turn foot traffic declined in stores due to having a very small range of goods. The company was breaking even in profit but eventually that part of the firm was closed down. I don’t know the exact reason as to why it closed down, as I fell terribly ill before that happened, but to simplify, I assume it was because it ran out of cash or was about to.
In my experience, debtors are very important, and I feel the budgeted balance sheet helps managers keep track of this. Martin says that things don’t go as expected at times in business and this is very true. What happens when a University doesn’t pay on time for 500 MacBook’s it ordered and received? What happens to the suppliers for that firm that can’t be paid? Can goods be ordered even though a large outstanding sum is being owed? What if your overdraft facilities are overdrawn, you’re waiting on about $1million dollars to be paid from your debtor, would a bank see your debtors and still loan you extra cash based on that? Would a supplier still supply you the goods knowing that it’s not your firm that owes the money directly but an education institution? Would they understand that education is a fairly reliable source of funding and that the funds will still get paid? Unfortunately, the answer to that last question is no. I know that one from experience, but the other questions I’m very curious about. Everyone wants to be paid on time, but I can tell you for certain that it doesn’t happen. It just doesn’t. There’s always a bunch of reasons for this, and some are fairly understandable but its always best to have a backup plan. Be prepared for the unexpected as purple chocolates did by ensuring they had extra cash available.
I wish I had more questions about Chapter 7, but truth be told I don’t. I felt like I understood it very clearly. I was really engaged and chapter 5, 6 and 7 have been my favourite chapters by far. It might be because I can relate to them more from my previous experience and it seems that I just understand it more. When I think about my goals, my dreams and my objectives, I think about my understanding and learning and how I can apply this knowledge to my life. I feel like I am starting to get it. I’m going to keep dreaming, I’m going to keep working, I’m going to keep striving, and I’m going to keep hoping, because hope is what is allowing me to keep my dreams alive of seeing my fiancée again real soon. Hopefully. God, I really miss her and can’t wait to see her again.
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