I will state that this is an ongoing process always subject to modification and redesign for the business involved. m My associate Joe Woods and I use these, and virtually every business operating in the free world does with some modification. For the sake of our discussion I am talking about MANUFACTURING ENTERPRISES as that, or farming is generally within the parameters that we are working within.

Joe has just set up another production module in the manner I have described previously and we are accumulating more brood stock for both operations as we continue to reproduce breeding colonies and some stock for future sale.

In our discussions I have talked about accumulating inventory, building base rocks ala GARF for developing cuttings on, accumulating the tanks and equipment and all that is necessary to operate our business. The material so far can be roughly grouped under two loose headings: INVENTORY, & EQUIPMENT. In manufacturing companies inventory is typically accounted for under three types of inventory:

Three Types of Inventory 1. Materials Inventory-raw material on hand and available for use in the manufacturing process, i.e. Portland cement, aragonite, sand, marine shells and the materials used in pouring base rocks. Marine salt, aragonite for tanks,vats, would be under operating supplies, not inventory, and I will deal with that later. 2. Work in process Inventory(WIP)- partially completed goods which have been started but not yet completed-i.e. planted plugs being grown, base rocks poured and having coralline algae grown on them ,etc 3. Finished Goods Inventory-live rocks and finished coral rocks available for sale to customers.Snails, fish, tube worms, all livestock grown out and held for resale.

These three categories cover all types of inventory and represent the completed costs of producing goods for resale as they contain all of the purchase costs, operating costs and overhead costs if, you track the costs in producing each of these you will know what your cost of doing business is. From that, you can determine how much you need to sell your products for to stay in business, and make a living from it. Without accurate cost figures you are guessing, and that can be fatal to a business.

There are two inventory accounting systems generally in use- perpetual and periodic, most manufacturing companies use perpetual systems and that is what I use and suggest for this type of operation. perpetual = a constant count of what is on hand. Periodic means counting 'now and then', typically once a year to verify the books.

So, lets take a closer look at the three types of inventory, and their costs tracking. DIRECT MATERIALS are the raw materials and component parts that become our products. They do not include our breeding colonies or the rocks they are mounted on, but only those raw materials that we are using to make our sale products. Cuttings become Direct Materials after they are produced as a cutting. A tree in a nursery producing seeds is not direct material, its seeds that are gathered and planted for seedlings are direct material. The tree is 'CAPITAL INVENTORY', and so are our seed colonies, pairs of breeding fish, and other living organisms. The completed reef rocks that we sell from our efforts and compiling all of the ingredients are our finished goods .

The base rocks that we have poured, or otherwise produced, whether bought as is or manufactured are the beginnings of the WORK IN PROCESS INVENTORY. Plugs being grown out, base rocks growing coralline, fry growing out, all of these are work in process inventory. When they have completed sufficient growth and are determined to be salable they are transferred to Finished Goods Inventory.

The FINISHED GOODS INVENTORY represents all products ready for sale, they do not include colonies held back for reproduction, breeding stock held back is transferred to capital accounts for livestock and equipment. This also needs to be tracked so we know what it is costing us to build up our breeding stock inventories.

These three categories of inventory will make it easier for your accountant and you, to track your costs. That is coming as we continue our discussion. A major cost area that MUST be tracked is Labor. Without it you are truly guessing as to what your costs are. The Direct Labor account is used for us to track the payroll costs of us and our workers and assign these costs to our goods that we produce. The account Direct labor is used only for those in production of our goods, not office, or sales personnel time. This is handled separately.

The last major cost category to be delt with is MANUFACTURING OVERHEAD. This includes all indirect and support costs, lights, rent, repair and maintenance, operating supplies - (Ocean Pure, replacement lights etc). These can be tracked in one account, which I suggest or subsidiary accounts, I would lump then all together for our purposes. There are other areas that also can be considered under this heading, but, I would be somewhat loose, if it isn't a manufacturing cost it probably belongs here.

All of our costs of producing our products will fall under these three cost categories:

Three Cost Categories 1. Direct Materials 2. Direct Labor 3. Manufacturing Overhead

When you have an accurate cost for each of these, you will have an accurate cost for producing your products. Then, and only then, you will know whether you are making money, or just handling a lot. This is a very real potential problem.I grew up in a major dairy producing state. In the 1970s I saw a great many good 'producing' farmers who were excellent producers go out of business, because they confused handling a lot of money, i.e. big milk checks, with ' Making Lots of Money, that is, putting it in your pocket after the bills are paid.

Being SOLVENT means to have the money to pay the bills and obligations when due. It does not necessarily mean having lots left over, it just means getting the bills paid. These good dairy producers I knew sold a lot of milk, they did not watch their costs, and became INSOLVENT , that is could not pay their bills, and went under. You cannot remain solvent without keeping track of your costs. That is a 'natural law' of business.

This is why I have stressed to have a meeting with an accountant and set up a simple set of books.If, you are reading this I assume that you have or, have access to, a computer. There are several good, 'user friendly' accounting programs available and two in particular I reccomend, one Peach Tree, and the other Quick Books, not to be confused with Quicken, a home finances program. Of the two, Quick Books is my choice, it helps to guide you through in setting up your business and accounts and is the easiest to use from what I have seen.You can also often find it at discount centers. However you get it, its a major business asset, and easy to learn, both have tutorials and constant guides in setting up your business and accounts. And both are known to most professional accountants and will work with you in using them.

Whichever you use, work with an accountant in setting up a simple system. You do not need an elaborate system. You do need a workable one.The old military acronym is good to keep in mind-K.I.S.S.-Keep It Simple Stupid.

Now, after introducing the concepts above: direct material, manufacturing overhead, etc.what has that got to do with the price or rice in china or producing reef rocks? Glad that you asked!

These are headings for your accounts, and ledger book entries!
You guessed that right along didn't you?

When you buy five bags of Portland #3, you make an entry under the Direct Material account, and add the five bags into your direct material inventory with your debit entry to the amount of the cement, and credit the cash account.

When, you pour your rocks you 'transfer' the #3 to the WIP(Work in Process) by crediting the #3 in the Direct material and debit WIP for the cost amount of the cement used, also the aragonite, etc used. This is how you 'transfer' material from one account to another. your accounting program will do this for you, or you can have a bookkeeper do it for an hour or three a month or however it works best for you.

Do some accurate cost allocation of your electric, space used if in your house, and factor these costs into your records. If, you intend to make this a full time producing business for you then this is where you start, and this is what will separate the businessmen from the hobbyist. Nothing is wrong with being a hobbyist, I have been an aquarist all of my life, even when I was in retailing , wholesaling and working at a Florida Fish Farm.

But, a businessman taking care of his family, and remaining solvent, cannot operate as a hobbyist does if he wants to remain in business, or, very few can. Donald Trump spends big bucks on his whims, but, he makes much bigger bucks by being a shrewd businessman. Bill Gates just makes bigger bucks and spends little.' Different strokes for different folks.'

By the way, being shrewd has little or nothing with being intelligent. Shrewd is 'concentrated self-interest'. It wins no friends in personal lifestyle, but, it keeps most good businessmen in business. I do not advocate our becoming 'Scrooges', unless its the last chapter Scrooge. For a real treatment of this subject read "The Seven Habits of Highly Effective People". I do advocate knowing what our product costs and selling it at a high enough margin over our costs to make a reasonable return on our investment and time. I am convinced that we can do this, and enjoy ourselves while we are doing it, else I would recommend we all go and study under Donald Trump, or Marla, whichever.

Next month I will develop this more and show in a little more detail how we handle the journal entries and fill in some of the 'gaps' in setting up our costs tracking. Know your costs and you will know if you are making money. How many different ways can I say that." let me count the ways."

THIS ARAGOCRETE^TM REEF ARCH HAS SEVERAL
ANIMALS GLUED TO IT - THIS IS A JUNE 1997
PICTURE SHOWING THE ATTACHED INVERTS.

THIS IS THE SAME ARCH ONE MONTH LATER.
THIS PICTURE SHOWS THE INCREASE IN CORALLINE
AND INVERT GROWTH.

We now buy NO live rocks, only selected stocks of the reef species that we wish to cultivate. All liverocks that we use we produce from our own tanks. Think about this, there is some real reef preservation potential in replacing the dead corpses being offered as 'live rock' from denuded wild sites with our own captive-produced vibrant living colonized rocks with desirable micro fauna living on them, that are adapted to the marine aquaria environment.