Business tips – Learning to make good business decisions
Making good business decisions is easier to do when you have excellent information at your fingertips – and that’s the value of having great reporting at the heart of your startup.
Any cloud accounting software worth its salt will offer you straightforward ways to run your financial reports and track your important metrics. That’s standard in the new digital world. And this level of reporting gives you real, tangible data on which to base your decision-making. But good decision-making isn’t just about the numbers.
As well as having an effective understanding of your finances, you need a sense of what’s good for the business, how decisions will impact on your growth and what your future path looks like.
Run management information at least once a month
Modern cloud accounting software makes it easier than ever to run detailed, up-to-date reporting on your financial position. With the click of a button, you can run numerous in-depth reports and statements that show your past and future position. Doing this regularly gives you a wealth of financial information on which to base your decision-making and strategic thinking.
At each stage in your startup’s growth, you’ll have to make important decisions about your next step – so, it’s important to think about the financial implications of any new projects, the amount of cash in the business and the availability of new sources of funding.
Use metrics and projections to inform your decision-making
Setting up a custom dashboard to monitor the most important metrics and key performance indicators (KPIs) is definitely a good idea. Most accounting apps will let you tailor your dashboard, so you can pick and choose from KPIs that are most relevant to your startup.
Set clear and democratic targets for all of your main KPIs and track them on a weekly basis, so you’re monitoring the financial heartbeat of the business. If cashflow is looking poor, look at freeing up some cash, or borrowing money to fill the gap. If sales revenues are dropping, put some renewed vigour into your sales activity, or get a new marketing campaign underway to raise awareness of your most profitable products and services.
Talk to your board and executive team when scenario-planning
You may be the sole founder of your startup, or you may be part of a bigger team of co-founders. But the reality is that no one person can make all the decisions in a busy startup. To get the best overview of a challenge, or to come up with an effective way to grab a potential opportunity, you need to talk to your team – that’s the only way to get an effective consensus.
Talk through the current threats and opportunities and run through as many different potential scenarios as possible. What’s the best-case scenario, and how can you achieve it? What’s the worst-case scenario, and how do you plan for it, if things don’t go according to plan?
Work closely with an experienced external adviser
When you’re working in the business 24/7, it’s hard to see the business in an objective way. Your judgement on some issues can be overly emotional and clouded by internal or political factors. Working with an experienced accountant, business adviser or business coach brings a fresh perspective to the business – both financially, strategically and emotionally.
Having a trusted external accountant on the team definitely helps you get your numbers straight. But they can also bring their knowledge and experience to bear on your strategic thinking, your decision-making and the impact of the business on your own mental health and wellbeing.
You can open up to them about your worries, share your aspirations for the business and bounce strategic ideas off them – taking some of the pressure off your shoulders.
Track how you’re measuring against your goals
To meet your goals and make good business decisions, it’s helpful to monitor and track your progress against these targets. If you refer back to your reporting and KPI metrics, you can easily measure your performance over time – and take action if progress is starting to slip.
Areas to keep an eye can include your:
- Cashflow position – to make sure there’s enough cash in the business to keep your project moving forward and heading towards the agreed end goal.
- Sales figures and revenue – so you can see how you’re tracking against your sales targets and if the intended revenue from the project is being achieved.
- Budgets and expenses – to check that you’re not overspending on your project and that the team is being sensible with costs, expenses and essential overheads.
- Gross margin percentage – so you can keep the business profitable and aim to meet your profit targets for the period, or year-end.
- Growth against targets – to keep the business performing well and growing at the rate you predicted to meet your growth target for the period.
Making a few bad decisions along the way is all part of the learning process. But by monitoring your performance and talking to the best advisers, it’s easier to keep the business on track.
If you’re at the early stages of planning out your business idea, please do get in touch. We’ll help you set up the best possible management information, to help guide your decision-making.
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