How to Make Financial Decisions
Should you buy? Should you invest? Should you upgrade? Should you expand? Should you save? Should you downsize? Running a successful business means having to make tough financial decisions. Use this simple guide to help you make the important financial decisions that are necessary for your best chance at success.
Other People Are Reading
Instructions
-
-
1
Set aside your emotions. They have no place in the world of financial decision making. Excitement, hope and fear are powerful motivators, but they are not rooted in facts. Financial decisions need to be based on the cold, hard logic of mathematics.
-
2
Establish a break-even point. Take into account all factors involved in the return on your investment. For example, if you are considering paying for an advertising campaign, how many sales must it generate to recover the cost? Factors to consider would include the total cost of the campaign creation, administration, and operations. Remember to compare apples to apples; don’t confuse gross sales with net sales.
-
-
3
Worst-case scenario. Think about how much you stand to lose if everything goes wrong. What is the maximum amount of funds you might lose? Now put that in perspective by comparing that amount to other expenditures you make, and analyze its impact on your bottom line.
-
4
Best-case scenario. Think about your realistic targeted ROI. Don’t get all dreamy-eyed by thinking about the absolute best possible outcome. Keep it realistic.
-
5
Run all the numbers. Don’t get fooled by shiny offers. For example, let’s say someone offers you a coupon for 10 cents off every gallon of gas on your next fill up, or 50 cents off your order. If your car holds 15 gallons, the gas coupon sounds like $1.50 in your pocket. Much better than 50 cents. But where is the gas station? Even if it’s only 5 miles out of your way, you lose. That’s a 10 mile round trip. You vehicle gets 20 mpg, you’ve burned a half gallon of gas.
-
6
Put it on paper. Weigh the pros and cons side by side.
-
7
Seek professional advice. Sometimes it’s hard to predict the outcome of your decisions, more so if you don’t have a great deal of experience in that particular area. Contact a consultant who can offer you the benefit of his or her expertise. It’s always cheaper to learn from other people’s mistakes than to learn from your own.
-
1
Tips & Warnings
Sometimes it’s best to sleep on it. Being pressured to act now is rarely a sign of a good transaction.
See “Additional Resources” below for more tips on how to grow your business with smart financial decision making.
Before signing any contract or agreement, make sure you completely understand every word.
