Are you disappointed with the return on your latest business decision? Or maybe you want to expand, but are unsure of the real risks involved? Well, what if you knew the outcome of every business decision in advance? A bit of methodical analysis allows business owners to do exactly this. By considering a variety of factors, you can make more accurate forecasts of the impacts on your business from specific decisions. For example, these may include financial and staffing needs, and the key drivers of your business.
With proper analysis, business owners can:
- Easily understand the financial impact of decisions
- Create business strategies
- Develop a thorough understanding of the drivers of financial performance
- Stress test financial performance
- Uncover causes of business problems
- Create projections, and
- Discover solutions and avert potential financial disasters through ‘what if’ scenarios
This process of analysis is the best practice in financial decision making. However, very few business owners have the tools to run this type of analysis. Specifically, many make financial decisions with their gut feel. There is nothing wrong with this, as most business owners are intuitive about their business and it runs. Still, they could easily improve the accuracy of their forecasts, with a more methodical approach.
Conducting more high level analysis can be very quick and provide useful information, that leads to more informed decisions. You can do this manually, or with software. Regardless of the method, business owners must take into account many factors before making substantial decisions, such as deciding to expand. While, some of these factors are financial, some are not. However, all of them impact the bottom line, in the short term and long term. Whatever your decision may be, it is important to remember the bigger picture. Business owners should consider whether their choices will fit into their long term business plan. Business planning is another subject entirely!