Excerpts from The Rudiments of Business

(From Chapter 1 - What caused the 2008 Financial Global Melt Down)

The crisis began in the United States when the default rates climbed on ‘subprime’ and adjustable rate mortgages provided to persons within the housing sector beginning in 2005–2006. (These types of mortgages are provided to persons with little or no equity in their properties and who are unable to secure funds through the normal banking channels).

Government policies and competitive pressures for several years prior to the crisis encouraged higher risk lending practices. Further to this, an increase in loan incentives such as easy initial terms and a long-term trend of rising house prices had encouraged borrowers to assume difficult mortgages in the belief that they would be able to quickly refinance at more favourable terms.

(From Chapter 4 – Money Banking and Foreign Exchange)

This chapter explores some basic theoretical concepts involved in the understanding of banking and the money supply. Having an appreciation of these can enhance your understanding of the financial world that your business operates in and the language used there.

Contrary to public perception central banks are not all-powerful and have limited powers to put their policies into effect. Most importantly, although the perception by the public may be that the ‘central bank’ controls some or all interest rates and currency rates, economic theory (and substantial empirical evidence) shows that is impossible to do both in an open economy. Since most Western economies are now considered ‘open’ with free capital movement this essentially means that central banks may target interest rates or exchange rates with credibility, but not both at once.

(From Chapter 8 –Getting Started)

Don’t be fooled by the size of a business or of the company profile and their executive team. Several years ago I was appointed to sort out a food processing company in Australia that had lost over $16 million in one year on a $50 million annual turnover. To make it even more difficult they employed up to 2000 seasonal employees and I had to deal with five different militant trade unions.

Why did this happen you may ask. Put simply it was lack of leadership, attitude, commitment and incompetence. ‘I can’t understand it, we are market leader’ one of the executives told me. That’s right they sold more product than any competitor because they sold 15 units to the dozen. The main problem however was that because of their antiquated accounting system they had not kept tabs on cost increases in raw materials so their margins were continually eroding. Consequently the more of the products they produced the higher the losses were building. No-one had realised that their cost accounting might be seriously out of date.

It took me over 14 months to change employee attitudes, through managing on my feet, having the occasional coffee in the staff canteen and sheer hard slog. Eventually the plant was motoring along the road to productivity and the losses recovered.

It is crucial that you have a considerable amount of knowledge about the industry that you are about to get into. It is no different than a marriage. ‘Easy to get into however it can be extremely difficult and painful to get out of’.

You need to know your breakeven point in your business. Many business owners do not and they are travelling dangerously blind. Simply put the ‘breakeven point’ is the place where the volume of sales will pay all of the outgoing costs of items needed to run the business.

(From Chapter 6 – Economics Simplified)

Economics too many of us may appear to be the study of complicated tables, charts, statistics and numbers. It is however the study of what constitutes rational human behaviour when trying to fulfill human wants and needs. Hence its relevance to the business person supplying those wants and needs.

In order to fully understand economics you first need to understand:

the concept of scarcity and
the two branches of study within economics that are, macroeconomics and microeconomics.

(From Chapter 12 –The Essential Qualities of a Successful Business Manager)

I have always lead from the front and my philosophy has been to manage on my feet 50% of my time; walking, talking and listening to my staff, suppliers and customers.

The new age of technology has been a blessing and a curse. I have found in some businesses staff have continued to send each other emails trying to resolve certain issues. In some cases this has gone on for hours when simply getting up out of their chairs and resolving it face to face would have sorted it.

It is no wonder that some businesses are losing their ability to communicate in person effectively.

At least once a day I would walk around the building, warehouse, factory and speak with employees and if the plant was operating 24 hours a day I still made a point of it. The only exception being those branches out of town. I want to know everything about the business I’m running, my daily cash position, debtors, creditors, and my staff.

To those CEO’s and GM’s who say they are too busy to visit the factory floor on a regular basis I say absolute rubbish, get off your backside and lead by example.

Over the years when I have operated large workforces my daily walks have resolved many issues that could have ended up with staff walkouts and costly arbitration hearings.

To excel in management is not about dominance or arrogance but leading by example, encouraging and supporting your staff while providing the necessary tools for them to carry out their duties to their best abilities.

(From Chapter 18 –Developing a User Friendly IT System)

Before purchasing your computer system, the first stage is to assess your needs. This way you won’t be confused and possibly seduced into buying an inappropriate system. So, work out what information you wish to capture process and store on your system. Consider how you want to process the information e.g. between computers in the office or out in the field with customers.

The next step is to find a suitable programme that will suit your requirements factoring in the growth that you expect to have over the next three years.

Business is about ‘continuous improvement’, if we think we have reached it, we are only fooling ourselves.

(From Chapter 19 – Strategic Planning)

Strategic planning is all about creating a vision of the future and managing towards that expectancy and it is designed to answer three basic but important questions:

1. Where are we today?

2. Where do we want to be in the future?

3. What should we be focused on today, in order to make it more likely we will be where we want to be in the future?

Entrepreneurs and business managers are often so preoccupied with immediate issues that they tend to lose sight of their ultimate objectives. That is why a business review or the preparation of a strategic plan is a virtual necessity. This not necessarily means that the business will be a success, but without having a strategic plan your business is much more likely to fail. The old saying of ‘Businesses don’t plan to fail, they fail to plan’ is the same today as it was a number of years ago.

A strategic plan should not be confused with a business plan. The former being a short term document whereas a business plan is usually a much more substantial and detailed document. A strategic plan provides the foundation and framework for a business plan.

(From Chapter 23 –Credit Control and Bad Debts)

Many years ago when I ran my own engineering business on a tight budget I recall a certain customer that owed my company a considerable amount of money. The account was three months overdue and he would come up with a list of excuses of why he couldn’t pay me at the time. On my way out to a meeting after work one night I noticed the latest Mercedes parked next to his office. The following day I contacted his office in an effort to find out who owned the car. To my surprise the same person who could not pay me what he owed had just purchased the new vehicle. Within

four hours I had served him with a winding up notice. The account was settled 24 hours prior to going to court. It was a good lesson to me and one I never forgot.

Don’t let accounts go out over 3 months without an agreed repayment schedule

‘Cash is King’ - a sale is not a sale until the money is in your bank.

(From Chapter 32 – Human Resources)

The intent of Human Resources Management is to attract, administrate and motivate employees in accordance of the company’s mission statement as set out by the business or organisation. It is also concerned with aligning the employees’ goals with that of the organisation. As with all other sciences dealing with people, human resources management is both an art as well as a science.

Human resources management serves the following key functions:

· Recruitment and selection

· New personnel induction programmes

· Training, development & up-skilling (people and organisation)

· Performance evaluation and management

· Career development and promotions

· Industrial and employee relations

· Record keeping of all employee personal data

· Workforce planning

· Health and Safety

· Performance appraisal

· Compensation

· Leave Management

· Travel Management

· Payroll Employee Benefits; - inclusive of medical and retirement benefits

· Redundancy

Business is about strong leadership, people skills, marketing and basic common sense.

(From Chapter 39 – Change Management)

Understanding your organisation and matching the new initiatives to your organisation’s real needs instead of adopting the latest fads, is the first step in making your change programme successful. You need to recognise that bringing about organisational change is fundamentally about changing people’s behaviour in certain desired ways. Lack of technical expertise is not the main impediment to successful change. Leadership and management skills such as visioning, prioritising, planning, providing feedback and rewarding success, are the key factors in any change initiative.

Adopting a principled approach that displays honesty, integrity, openness and trust when implementing any change will see your change programme survive through the difficult times.

(From Chapter 41 – What is Lean?)

The basis of lean manufacturing employs continuous improvement processes to focus on the elimination of waste or non-valued added steps. The ultimate goal is to provide perfect value to the customer through a perfect value creation process that has zero waste. To accomplish this, lean thinking changes the focus of management from optimising separate technologies, assets and vertical departments to optimising the flow of products and services through entire value streams that flow horizontally across technologies, assets and departments to customers.

A popular misconception is that lean is suited only for manufacturing. That is not true as ‘Lean’ applies in every business and every process. It is not a tactic or cost reduction programme, but a way of thinking and acting for an entire organisation.