Tips to Make Smarter Strategic Financial Decisions02/09/2022 0 By indiafreenotes
- Get accurate and timely financial data before making long-term financial decisions.
Smart business owners let accurate data inform their mission-critical moves. It still shocks me to see the number of small and medium size companies who make big decisions with inaccurate or grossly incomplete financial information.
- Have a Spending Plan And Budget
As you should have a spending plan for your personal finances, you also need one for your business. The foundation of smarter financial decisions for your business always starts with a good budget, as this is still the best way for you to keep track of your expenses and other payables. With a budget, you won’t be spending any more than you have to. And, you’ll come face-to-face with the figures as to where you need to cut back on your business expenses.
You can get started with these six steps:
- Make a spreadsheet, as this makes it easier for you to input amounts, make computations, and even add columns and rows whenever modifications have to be made.
- Consider cost-cutting; if you can find certain areas in your business budget where you’re absolutely certain, the costs don’t have to be that high.
- Shop around for new suppliers and other services, so you’re sure you always have the lowest and most competitive rates from your current suppliers.
- Review your strategic pricing decisions
Most businesses set their prices when the business is new and desperately needs business, and as a result, set pricing levels low. Over time, the business may make nominal increases to pricing every few years, but rarely does the owner ever sit down and fundamentally rethink his pricing model. Do you price in relationship to your costs and your competitors? The most successful companies take both of these factors into consideration, but they also price in relationship to the cost of the status quo for their customers.
How much is the problem that your product or service solves already costing them? What is the real value of your product of service? What is the “frame of reference” you could give your customers that would help them immediately see your product or service as both the logically sound and emotionally satisfying solution?
- Consider changing how you charge
Is there a way you can move from a one-time charge to an ongoing revenue stream? Perhaps you do have a one-time charge for the initial purchase, but is there a way you can provide ongoing value to service your client on an ongoing basis?
The smartest business models allow companies to annuitize their business relationships.
- Don’t Consider Accounts Receivable As Cash Or Income
It’s wrong to consider accounts receivable as cash or income. Remember that it’s cash not until you actually receive the amounts. So, until you do, don’t think you already have that money to spend. Otherwise, you may be budgeting investments or other major expenses for the money you don’t actually have yet. If there are delays in those receivables, then your business’s financial stability will suffer.
- Find the optimal staffing level and manage your hiring intelligently
Look for a simple heuristic that helps you know when you need to hire more production and operational staff (e.g., sales per employee, projects per operations staff, etc.) and when you are too heavy. What are the indicators that alert you to the need to staff up or staff down? What investments could you make in technology, systems, and training that would allow you to produce more with fewer people?
Note that generally “A” players produce multiples more value than B or C players, yet cost only a percentage more.
Constantly be on the lookout for ways you can upgrade your team over time so that you can produce more with less.
- Get clear, fresh perspective before you make a major capital investment
All too often, business owners find a succession of small commitment steps lead them over the edge of the cliff when making the big infrastructure and capital decisions. They let sunk costs and vested interests that they are afraid of losing push them to chase bad money with good.
After you have gathered all the relevant facts, step back with your leadership team and ask the question fresh: “Knowing all we know today and imagining that we had no sunk costs at this point at all, what is the best decision for the business over the short, medium, and long-term?”
- Know the difference between strategic expenses and nonstrategic expenses
Strategic expenses are those things that directly help you sell more or produce better. They include marketing campaigns that work, salespeople who sell, technology upgrades that reap real returns and ongoing advantages of significant value, and intellectual property barriers that give you a sustainable advantage for which the market will pay. Nonstrategic expenses essentially include everything else.
Outspend your competition for strategic expenses in good times and bad. Relentlessly cut nonstrategic expenses. And repeat this over and over.