Definitive Business Plan, Second Edition, The

Where the money goes

Business sometimes seems to be a black hole that sucks in money. Understanding and controlling costs is important. But naïve managers sometimes become obsessed with cutting costs, often to the detriment of the business. As I comment elsewhere, spending can be reduced by 100% maximum. Revenues could be increased to almost infinity. Spending wisely to produce the maximum return is what it is all about. This chapter divides logically into three parts.

1. Capital investment. First, take a look at capital outlays. This is basically spending on assets with a life of more than a year. It is important, because it represents cash spent today with the expectation of future reward. For this reason, capital spending is singled out for close ...