Business owners are pulled in many different directions. Executing day-to-day business decisions can take up most of each working day. When it comes to making strategic business decisions, you are often confronted with a key issue. What is the critical data needed to make the strategic business decision and where can it be found?
You are likely familiar with the accounting reports generated by your company’s accounting system and overseen by your bookkeeper/controller. The information in those reports, historical in nature as it is, can provide good tactical data. It can educate you on issues such as what receivables are overdue, what the impact was of a recently introduced cost cutting program or if a new procurement program actually reduced raw materials inventory. This is good information to have, but it talks about results, that is to say, it looks backward.
Where should you look for information that can help you make strategic, forward-looking decisions? Decisions such as the impact of adding a new product line, growing the business organically versus through acquisition and the implications of that growth on the financial, human and physical plant resources of the company. To say that you want to grow your business 10% each year is great, as long as you have the money, people and space to accommodate that growth.
Making these strategic business decisions is truly a process. It involves you as the owner and, if possible, others on your team to get away from the daily distractions and carefully consider the issues at hand. It should also involve key external advisors—possibly a Board of Advisors or a close knit group of long-time company advisors. This latter group likely includes your company’s banker, CPA and outsourced CFO.
The data to make these decisions will come from the information gathered and shared with the strategic team on an ongoing (monthly or quarterly) basis. This information, a key component in the running of your business, will likely come from several of the following:
- Annual Operating Plan
- 5-Year Strategic Plan
- Cash Flow Forecasts
- Performance Metrics Dashboard
- Margin Analysis
Key facts and figures from the source documents noted above should be taken and applied toward the strategic issues being evaluated. Proforma forecasts/plans should be developed to provide a forward-looking view of the results from the strategic decisions being made. In addition, you may want to view the future results using more than one set of assumptions, i.e., a best case/worst case scenario. Evaluating in this manner allows you to use conservative/aggressive assumptions in making your decisions.