Several years ago, the concept of strategic business units or SBUs was introduced.In short, it proposed breaking a business into smaller businesses to better control and help capital allocation decisions. An example would be a restaurant that not only provides sit down meals but also carry out foods such as baked goods, along with catering. Let's assume at the end of this year the business has approximately $100,000 profit after wages, profit sharing, taxes, etc.
have been paid. The question is; What do I do with the $100,000?Assuming all three can grow, and can use cash for growth, which one or ones, should get the capital? Accurate financial results of the three aid greatly in the decision-making. In short, put money where you can obtain the best return.The key is obtaining accurate cost analysis.
Material and labor are not complicated, but burden is a bit more difficult. Fixed assets that are depreciated over several years need to be allocated, and this can be subjective. Each allocated dollar must have a 'home."Many of the SCORE mentors have experience in accurate cost accounting and can help you start the journey to management of SBUs.
The smaller and simpler the SBU, the easier it will be for to manage your business.The free and confidential help SCORE can provide has been helpful to many small businesses in Northern Michigan. Please feel free to request a meeting by going to our website at tipofthemitt.score.org, or calling (231) 347-4150 in the Petoskey area or (989) 731-0287 in the Gaylord area.Petoskey resident Bill Collins spent nearly 40 years in management and executive roles in the automotive industry, and is now a volunteer business mentor with SCORE's Tip of the Mitt chapter.