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simultaneously taking as long as possible to pay creditors.
Effectively, he or she is making your suppliers fund your business.)

n Are we profitable enough? (Profit margin: Profit before taxes
divided by Sales is the most simple measure, but accountants like
to dig a little deeper. Return on total assets: Profit before tax
divided by Total Assets is one of the measures that they use.)

n Should we even be in this business?

n Perhaps we ought to cash it all in and stick it in a building society?
(Return on capital employed, Net Profit multiplied by Capital
Turnover (Total Revenues divided by Total Capital) will usually
show that the small businessman’s constant moan of “I’d be better
off if I just stuck it all in the building society” is unjustified.)

Budgets and budgeting

As a committed believer in David Myddleton’s adage that any form of fore-
casting is little more than an educated guess at what might have happened
if what actually does happen doesn’t happen, I always hated developing my
budgets. They have, however, an important value to managers in major
corporations that the bean counters (Gary Wallace of GM being an hon-
ourable exception) rarely recognize. When times are hard and the finance
people are insisting that cutting all budgets by x per cent is the only route
to salvation, it is useful to remember that a budget is simply a business
plan stated in financial terms. So when the going gets tough the manager
ought to approach the hated budget before agreeing to any cuts with this
train of thought in mind. Our objectives were worthwhile and realistic
when we set them. Presumably therefore they are still worthwhile, but are
not necessarily realistic in today’s climate. So assuming that they are still
worthwhile, how much more would it cost to achieve them today? Are they
still worthwhile? If the answer is “yes” you at least have an argument
against the (almost always damaging) general bloodletting preferred by
those too lazy to test what ought to be cut and what it is worth going after
with as much precious resource as it takes. It really is very difficult to save
your way into a profit unless you are simultaneously looking for profitable
growth.

n Were our objectives really worthwhile to the company when we set
them?

– Are they still worthwhile today?

– Would they cost more to achieve today?

– How much more?

n At that cost would achieving the objectives still be worthwhile?

– Am I deluding myself because I want to escape any cuts?

136 Key management questions