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Finance and wallet

Today on TV you can often hear the phrase: “You need to live within our means!” In other words, you can’t spend more than you earn. This phrase is uttered by the heads of state and the “heads” of regions, referring to the revenue and expenditure items of state budgets. The same thing in business: expenses should not exceed revenues! And the “Rule of Five Wallets” helps us throughout the life of our enterprise to properly and rationally manage investment and operating expenses. How? Let’s get it right.
numbering-small.pngToday and tomorrow

We have already spoken with you that the “Rule of Five Wallets” does not divide expenses into fixed and variable, but into the following:

“Cost” – the cost of acquiring someone else’s, not created by us value;
“Current Purse Wallet” or “Today’s Wallet”, which includes paying for everything that is impossible without the daily functioning of the process of creating value;
“Development Wallet” or “Tomorrow’s Wallet”, from which the expenses sent “tomorrow” are paid;
“Salary wallets” and “Owner’s wallet”, which we have already examined in detail in previous articles.

We also figured out that two salary wallets (budgets) cannot exceed 50% of the value created by us (income received), and the minimum that the business owner “agrees” on is 1/10 or 10%. It is easy to calculate that in this situation, 40% remains for the two remaining wallets. That is, theoretically, each of the budgets (development and current expenses) accounts for about 1/5 of the income received, or 20%. But how is everything really?

To begin with, let’s decide how tomorrow’s expenses differ from today’s, which is included in this or that wallet. The fact is that the same expenses can be there and there. For example, the cost of educating employees. It would seem that this is an investment in tomorrow. But this is the case if you sent your employee, for example, to further training. It is possible that the income of your business may increase from such an education.

If your accountant attended a paid seminar on tax changes or changes in reporting, then this is unlikely to change the amount of income – this is sometimes a necessary or necessary current cash flow. Or marketing expenses. Yes, most of these expenses are directed to tomorrow. These are marketing research, brand development and promotion, advertising campaigns and presentations, and other events that “tomorrow” may increase the income and profits of your company. But there are also expenses for current, so-called supporting advertising – billboards, pillars, leaflets and so on.

There are still a bunch of other expenses that at first glance are difficult to determine if they are “tomorrow” or “today.” But let’s conclude from those examples that I described above. If it is assumed that with the help of the expense incurred, either the company’s revenues increase or its value increases, these are the expenses of the Development Wallet. Looking ahead, I’ll say that a lot of economic research and observation has shown that if you invest less than 1/5 of the created value in the future, then this future (in business) may not exist. Accordingly, if the expenses do not increase either the profit or the value of the business, then these are the expenses of the “Wallet of current expenses”.

For a more accurate understanding, consider the following example. You need an office for work, and you have a choice – either rent it for 20,000 rubles a month, or take a loan, buy an office and give the bank the same 20,000 a month. In the first case, you do not get richer; renting an office is your current expenses. In the second case, every month you become the owner of a small piece of real estate, i.e. increase the value of the business and, of course, bear the costs of the development budget.
“Development wallet” or “Tomorrow’s wallet” is the budget from which various long-term acquisitions (fixed assets) are paid, loans and borrowings are returned, intangible assets are acquired, expenses for training, strategic marketing and other expenses directed “tomorrow” are paid . In addition, income tax is paid from the same wallet. “Current Purse Wallet” or “Today’s Wallet” are monthly and daily expenses: rent, utility bills, fuel and lubricants, supporting advertising, current taxes. In general, payment for all that without which the daily functioning of the process of creating value is impossible.

Structural and analytical management method

At the start of a business, while the revenue side is still not too large, recurring expenses generally exceed 20% and can reach 1/3. But by no means no more! Then, as revenue increases, the share of current expenses decreases and in some cases it can be 10%, which I have met in my practice, but very rarely. Most often, a stable business has a structural value of current expenses of 12.5-15%.

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