How to Drive Financial Decision Making in Business

By
HedgeThink

 

Running a business, as a manager or owner, relies heavily on the various reports that your operating system spits out. Financial papers are detrimental when it comes to making informed decisions. If you do not make decisions based on facts, your profit margins are likely to drop. According to a management consulting firm, McKinsey, a company that can make fast, efficient decisions will see a 20 percent return on its financials.

Managers need to be able to read the statements that are presented in front of them. Financial decisions that drive the business must be decided upon by using, and understanding, the following aspects:

  1. Statements – Financial statements were touched on above, but the importance of being able to accurately read them cannot be stressed enough. Balance sheets show where the company is when it comes to assets and liabilities. Operating, investing and financial activities are broken down in the cash flow statement. When you want to know if your company is making a profit or a loss, the financial statement will be what you look at. There is obviously much more to these three types of reports, but it is beyond the scope of this article to cover them. Consider setting aside time to get a management DBA which will allow you to learn specific leadership skills intended for upper management and executive positions, along with progressive business management practices.
  2. Estimate Projects – Every business has several projects that need to be completed. Each manager, or owner, will have a few that they also want to do. You must need to be able to evaluate all the projects on the table and identify the ones that will make the company money. Or the projects that will make the everyday tasks easier and more productive. The ones that will end up causing you to lose money need to be thrown out. The return on investment (ROI) reports will allow you to make educated decisions on projects, or even new products, that you have planned.
  3. Budget – This is an aspect of business that you probably learned about in high school. A budget helps you manage the money that you have. It also gives you the ability to compare the actual amounts that have gone out compared to the projected amount. If the numbers are off by a substantial amount you may need to make some changes during the basic operations of the company.
  4. Team – Making good financial decisions is not a one-person effort. You need to involve the entire team. Every person has their own set of knowledge and experience. Put the brains of everyone together and a solid decision can be made that will be the most beneficial for the entire company. It also shows your co-workers that you respect their thoughts and opinions, which will make them happier and more productive.
  5. Financials – Evaluating your current profits, compared to the past gains, will give you an idea of how well the company is growing. If you can see a pattern of growth your company is on the right track. If you see profits slowly going down, the problem needs to be found and corrected.

 

To drive the importance of the financial reports, when making business decisions, the entire staff needs to understand how they tell the tale. You can use your knowledge to teach them all, or when you hire you can only offer jobs to the people that have completed higher education courses. If you are one manager, in a team of managers, you may be able to teach them what you know. It is also possible that they can teach you a few new things. The bottom line is that you need to use all the reports if you want to make informed decisions that will have a positive impact on the company’s profits.

 

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