Cost Control Advice for Small Manufacturers—Delivered Quietly, Clearly, and On Paper.
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A look at a few of the projects completed over the decades of my career.
A look at a few of the projects completed over the decades of my career.
Project 1: Designing Business Control Systems
Project 1: Designing Business Control Systems
After completing Chartered Accountancy, I joined a small company engaged in steel fabrication contracts, mostly steel towers for power lines. The control systems at the company were ineffective and I started redesigning key systems.
ACCOUNTING: There was just a cash book and ledger, and too many accounts. I reduced the number of accounts, categorized them under meaningful classifications like Contract Revenue, Contract Costs, Administrative Costs and Financial Costs. The cash book was converted into a columnar format with columns for each category. A journal was introduced to record accrued non-cash items.
As a result, we were able to get meaningful insights into operations soon after the end of each month.
BILLING: Deliveries under the different contracts were made by one department and billing for the deliveries were done by accounting department. There was a lot of confusion and one was not sure whether all deliveries have been billed.
I combined the Delivery Note and the Invoice into one document. When deliveries were made, the next Invoice Number was generated and the deliveries were recorded in the delivery part of the invoice.
Accounting department was now able to track all deliveries and bill for these.
PERPETUAL INVENTORY: Inventory records were not up to date and there was no way to check whether supplies were going missing.
I introduced a perpetual inventory system, checking actual inventories of operating supplies every working day with the book balance. This forced the store keeper to keep the inventory records up to date.
We were also able to evaluate year-end inventory quickly and prepare authentic financial statements.
Project 2: Reviewing Business Operations
Project 2: Reviewing Business Operations
I was a kind of management auditor (Advisor to Chief Executive) with a business group that owned several manufacturing units. These units produced different products such as power cables, steel wire ropes, steel forgings and fiber foam mattresses.
I created a checklist for doing the review of production and marketing operations, and financial positions and ratios.
The findings were almost similar for all the units:
Marketing was not a problem for any of the units, with the group management able to utilize production capacities almost fully
Production operations involved significant incidence of scrap and materials wastage
Working capital management did not get the desired level of attention and resulted in higher costs to the companies
The costs of wastage and inadequate working capital management were, however, covered through the high margins the group management were able to get from sales.
Project 3: Exposure to Key Business Result Areas
Project 3: Exposure to Key Business Result Areas
I had left employment and was engaged as a freelance computer applications developer.
During a period of just over a decade, I designed, developed and implemented over fifty custom applications for several small businesses.
The systems so delivered covered practically all key business result areas - Jobs Costing, Cost Estimating prior to RFQs, Inventory Control, Sales Analysis, Receivables Aging Analysis, Financial Accounting, Payroll, Financial Modeling, Production Planning & Reporting, and more.
The work exposed me to operations in a number of different industries and how costs can remain hidden unless systems were in place to monitor the different categories of costs.
Project 4: Small Business Management Issues
Project 4: Small Business Management Issues
After discontinuing the application development venture, I had picked up HTML and was soon developing web content for clients in different countries.
One major content development assignment was researching and writing small business management articles for an online publication. This assignment involved publishing weekly articles, and lasted for over three years.
Combined with my practical experience so far, the sustained research generated in-depth insights into small business management. Concepts like business models, performance ratios and cost control in different areas became actionable steps.
Project 5: Business Plan for a Restaurant in UK
Project 5: Business Plan for a Restaurant in UK
One client wanted to submit a proposal to set up a vegan restaurant in Nottingham, UK. I did a research about the the restaurant market in the locality while the client provided inputs about portions, ingredient costs and selling prices. Based on these, I created a business plan in a standard format, supported by financial estimates, which are outlined next.
Project 6: Complete Financial Model for a new Venture
Project 6: Complete Financial Model for a new Venture
This financial model was created as part of the business plan outlined above. The model estimated the following:
Cost of setting up a new project, with kitchen equipment being the major cost item in this case
Estimated profitability of the venture based on specifically stated assumptions, including portion control of food, ingredient costs and selling prices for different dishes. The assumptions helped to make clear what is needed to achieve profits after estimated ad spends to generate required footfalls
Estimated cash flows, covering both one-time and recurring flows, that bring out the funding needs. We assumed that the needs will be met through debt and equity in a ratio of 3:2
Projected balance sheets based on the above estimates. These showed the overall financial position at the end of each period. The computations revealed that accumulated losses could be recovered by end of year three.
I have selected a very small project as the goal here is to indicate the financial modeling process, and also to minimize complexity.
Project 7: Financial Model for an Organic Food Venture
Project 7: Financial Model for an Organic Food Venture
The venture had rented a plot of land in Kerala and Karnataka to cultivate organic produce, and had a store in Bengaluru to sell the organic cereals, vegetables and spices. They wanted to expand by adding a restaurant that served food from organic ingredients. I prepared a detailed, interactive, financial model that allowed reviewing operating results and financing needs under different assumptions.
Cost control was an important element of the success strategy in the competitive restaurant market. So we had to go into the cost details in significant depth. The costs covered agricultural, store operations and restaurant operations. It was indeed an insightful exercise!
Incidentally, the venture was able to secure venture funding based on the project report.
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