It isn’t uncommon for startups to collapse after some years and different factors are held responsible for business failure. From strategic weaknesses to communication problems – several businesses have been brought down by these challenges. But one factor overlooked by business owners involves making poor financial decisions. Today, a company’s decision-making process must involve solid facts and reliable statistics for better decisions. When it comes to making financial decisions, it’s more important to consider reliable information. So, how can you make sure that your company’s finances are determined smartly? Here, we shall discuss some valuable methods to help you make profitable economic judgments in business.
Tips for better financial decision-making
Several studies have confirmed that 90% of companies can’t even survive for five years. We’ve discussed poor decision-making already. Thus, it leads to money issues when startups run out of cash to fund their business operations. Making more intelligent financial decisions can help you survive financial problems and keep yourself motivated and committed to the company’s long-term objectives. In short, business owners can save cash with smarter financial decision-making and implement their business initiatives effectively. Let’s review some nine crucial strategies to make well-informed financial decisions and help your company survive the coronavirus pandemic. Small businesses find these tips extremely helpful:
- Hire financial experts
It’s sometimes difficult to make smarter financial decisions without outsourcing assistance from an expert. You might now wonder what do financial analysts do to help your company. They help make your business decisions compatible with the company’s financial objectives. Also, they can turn raw data into actionable insights, thereby improving your organization’s earning potential. These experts can serve as valuable additions to your company, thus allowing you to become financially savvy.
- Don’t mistake AR for income
Don’t forget that accounts receivable (AR) isn’t income. It’s just unpaid money you’re supposed to get from your clients/customers. So, don’t make financial decisions by counting AR as cash in your hands. Unless these customers pay you the money, you shouldn’t invest it. It’s not wise enough to purchase something from the money people have promised to give you. Delays in receiving it can lead to problems with your business schemes and cause financial insecurity.
- Think long-term
Always consider the long-term impact of your decisions before implementing them. It’ll allow you to ensure they’re well-matched with your objectives and create lasting wealth. From planning business expansion to investing in marketing endeavors – don’t rule out how these decisions will impact the company in the future. That’s how you can pursue long-term profitability and ascertain the sustainability of your startup. Experts have called long-term thinking the best short-term policy for a business.
- Plan your expenditures
One crucial aspect of making well-informed financial decisions for your business involves planning your expenditures with efficient budget-making skills. That’s how you can track your payables while monitoring your expenses. A budget restricts overspending, thereby saving your company from any financial downfall in the future. You can allocate more money to departments that need investing and cut down costs that are deemed unnecessary. Making a budget keeps your decisions smart.
- Keep personal expenses separate
You can’t make well-informed business decisions without separating personal finances from purely business ones. Many startups encounter financial challenges because owners refuse to keep these two aspects detached from each other. Mixing personal and business expenditures can turn into a problem when the time comes to pay your taxes. So, we recommend having a separate bank account for personal use and another for business-related transactions.
- Learn about strategic expenses
You can’t make smart financial decisions without differentiating between strategic and non-strategic expenses. Strategic expenditures directly contribute to your company’s profitability, e.g., sales and marketing campaigns. However, non-strategic expenses keep your business running, such as the workspace you’re renting. A business owner should look for different means to cut back on the non-strategic expenses (work from home) while spending more on the strategic ones for more profit.
- Pay off your debt
We can’t stress this point enough, i.e., don’t forget to pay off your debt quickly. Include this among your business objectives to regain your independence and to become financially self-sufficient. Many businesses have financial obligations to pay off, e.g., people borrow money to finance their startups or for business expansion. But you should remember paying off these debts before pursuing plans for the future. After settling your debts, you can make other decisions without fearing any repercussions from your debtors.
- Recruit people intelligently
Before hiring/firing people, consider how it’ll influence your company as a whole. For example, you shouldn’t hire more people if upskilling the existing employees can produce better results. Also, you can delegate different responsibilities to them after investing in their education instead of recruiting another crew. Find indicators that alert when it’s time to lay off some workers to save costs. Don’t forget to leverage statistics to upgrade your team fruitfully.
- Don’t make rash decisions
Communication ensures that your financial decisions produce desired results. That’s why we suggest having a dialogue with the stakeholders before determining your next move. Making decisions in a hurry can lead to mistakes harming your company’s profitability. Perhaps you haven’t considered an essential factor while making a business decision. So, communicating with your team might enable you to realize your error. Consult your financial analysts to give their shrewd analysis. Give it some days before acting upon your decision. From individuals to corporations – sleeping on a decision can often help you reach a better one. That’s how you make well-informed decisions in any business!
In the past, business owners heavily based their financial decisions on intuition. Unfortunately, statistics show that this trend hasn’t died out in the 21st century. As per one survey, 58% of respondents believe that their company makes business decisions based on “gut feelings” instead of hard facts. So, that’s not how business organizations can remain profitable during an ongoing pandemic. You should consider the long-term impact of your decisions and consult financial experts before implementing a specific decision. Research your niche correctly, investigate potential competitors, and communicate with stakeholders to reach the best possible conclusion. That’s how you avoid potential financial downfalls in the future.