Jack Falvey's Investor Education Briefs: To fix a leaky bucket, plug the hole or pour more water inBy JACK FALVEY
December 11. 2017 12:37AM
Each business balances revenue and expenses in its operating budget. You are a business. You are delivering a lifestyle to yourself and, in some cases, providing for others as well.
You must employ the same techniques in running your business that have a proven success record in industry.
A list of expenses, usually known as a “chart of accounts,” is set up. Once you can name where the money goes, the harder questions of how much goes where by when can be addressed.
On the revenue side, income is listed. Very often that is a single source, and your influence over its total often is not totally under your control. In bonus or sales commission compensation or in your own small business where you get to keep some of what’s left over, cash to work with becomes a variable. As bills come due monthly, you should do your cash projections for each 30-day period.
The task at hand becomes: How do you control expenses? First plug the hole in the bottom of the bucket, and second increase income so you can pour more water in the top?
Businesses know that expenses are easier to control than to accurately forecast revenue, so they lean on the cost-reduction end of the process.
In running your own personal business, you must be careful not to let it run you. Projecting the expense side of your life is the skill you must develop. Adding to the revenue side of your business is why you go to work each day.
So the cash bucket in Fortune 500 companies is bigger than the one you are working with, but it works exactly the same way. The strategy recommended is dual. Do all you can to plug the expense holes, and do all you can to add more income to your top line.
You now understand how chief financial officers earn their top line. You now work in that profession. You now know how a bucket works.
Jack Falvey is a frequent contributor to the Union Leader, Barron’s and The Wall Street Journal. He can be contacted at Jack@Falvey.org.