The better financial decisions you make in your company determine many outcomes including the future of your business. Mistakes made in the financial aspect have dire consequences and may cause serious harm to your business venture.
To make better financial decisions, you need to know your business’ numbers and create better strategies for making financial decisions.
But how do you develop such strategies that can help you make sound financial choices for your company? This article shares ways you can achieve that and make your business more financially sound and sustainable.
1. Always Use Accurate Accounts
You need always to use accurate accounts if you want to make the right decisions. There’s no way you can use misleading information to make good financial decisions. When you have accurate finance-related information, your decisions will be based on facts and not assumptions or feelings. Accurate accounts tell you the exact financial position of your business.
In addition, they give a clear direction on where you’re coming from, where you’re going, and therefore, make a more informed decision on where you want to go. Consider having a professional team help you generate accurate empirical financial data. It could be your in-house teams or contract CFO services (Chief Financial Officer), as it’s crucial in creating factual and timely accounts.
2. Invest In Financial Education
Better financial decisions are those made from a knowledgeable point of view. Investing your time and money in financial education is crucial for putting you in a place where you can make better decisions. By learning about finances, you can become better at it and, therefore, also at the decisions you make in relation to it.
Just like you need to learn anything else, financial knowledge doesn’t just happen. You have to put some effort into understanding the language of numbers. You need to know the difference between a trial balance and a balance sheet or between profit and cash flow. But it’s not only a matter of learning the different terms.
Having an understanding of how things work in the financial function of your business is said to be highly advisable.
You can watch videos, read books, or enroll in a financial course and then apply your learnings to your business. This is how you learn what your accounts mean. It might be challenging initially, but it’ll enable you to make more sound financial decisions. However, if you’re not in a position to learn, the alternative is to use outsourced or contracted services, as mentioned in the previous item.
3. Compare Cashflow Forecast To Actuals Regularly
Having a clear understanding of where your business’ cash is said to be vital when making major financial decisions. Business moves such as growing your team or funding your growth through debt will need you to know how you stand financially and where you’re going. This is the only way you’ll be able to make better decisions in your resource allocation.
Using the anticipated events in your business, such as making a big sale or when a client will pay an invoice for a big job, can help you build a cash flow forecast. The more data you have to build your forecast, the better your projections on cash flow will be. In addition, set apart time each month to review your forecast and compare them to the actual cash flow accounts.
This ensures that you don’t get unpleasant surprises that may lead to emergencies leading to poor financial decisions due to cash flow issues. When you can predict a problem occurring in the future, you’ll be in a better position to plan and make wise decisions in a sober mind.
Invest in a good business financial software program. It can help you get a simplified bird’s eye view of your finances that’ll be the basis of all of your financial dealings.
4. Always Estimate The Financial Impact Of Major Initiatives
If you’re to effectively manage the different functions of the business, deciding on the initiatives, investments, and project worth pursuing and those that aren’t is a daily job. You should be able to predict how major decisions will impact finances. Get your data from completed projects and investments showing how the funds were allocated and their outcome.
Based on this information, you can estimate the anticipated return on investment you expect on a given initiative. Having these calculations puts you in a position to see whether the plan is worth pursuing or not. Data-driven decision-making allows you to make investment decisions based on evidence and past results.
Being able to assess and compare an initiative’s potential benefits with the cost of realizing it allows you to make objective decisions about which projects to pursue and which ones not to based on the projected financial performance and the financial benefits you plan on having.
5. Involve Your Team In Decision-Making
No one has answers to everything. Although you might be the business owner, getting varied opinions on different issues is positive for better decision-making. Involving your team in significant business decisions stimulates a more creative approach to the problems at hand. Other personnel can offer positive criticism that can change a final decision for the better.
It’s believed that decisions made by teams are better than those made by individuals alone. You may have members in your team who are very good at analyzing accounts, accounting standards, taxes, and many other areas. Leaning on different experiences and expertise is said to be an excellent way to make better decisions.
Tapping on your team’s knowledge helps you fill gaps while getting a broader range of potential solutions to an issue.
6. Regularly Track Financial Performance
Basically, knowing the past and present performance of your business finances is essential in making better decisions. You can only do that by monitoring your Key Performance Indicators (KPIs).
They include working capital, return on investment, and profit margins to help you measure the financial health of your business. By tracking your KPIs with a balanced scorecard software for finance, you can measure each goal so you can see how well you’re executing your overall strategy.
Another essential metric is your cash flow and profits. They help to paint a clear picture of what your business is doing in managing finances. It also helps you know if the business is growing, stunted, or failing. Tracking these KPIs allows you to decide on the most appropriate steps to take and the resources you need to achieve your goals.
Making better financial decisions depends first on how well you understand your accounts. Understanding your financial standing can equip you with what you need to decide which way the business goes. If you don’t have a financial background, learning the basics and concepts of finance puts you in a better position when deliberating and making better financial decisions that will advance your business.