Cracking the Code: Figures for Business Success

Here are a few things Pete covers:

• Unveiling the power of figures in decision making
• The importance of cost benefit analysis
• Evaluating financial viability and sustainability
• Understanding cash flow vs. profitability
• Utilizing financial ratios and time considerations

It's time to take action:
The most important thing for the listener to do after listening to the podcast is to apply the five-step framework discussed in the episode to their own decision-making processes. By conducting a thorough cost benefit analysis, evaluating the financial aspects, and considering the time horizon and strategic objectives, the listener can make informed choices that drive growth and success in their business.

Download link: The Decision Activator PDF worksheet

Are you looking to make some changes in your business and your life in 2024?  Head over to speaktopete.com and book a chat with me to see if we're the right fit!

Transcript

Pete Mohr: 0:35

What's the most important thing you do as a leader of your business? Well, you make decisions, and it's all about the steady progression of moving from operator to owner in your business. Ultimately, decisions should be made at the lowest possible level of your organisation. And if you're making all of the decisions, you've got some work to do. And in this six part series, we'll go through the five F's of better decision making, the framework will help get the craziness out of your head and onto paper so that you can reduce procrastination and advance the ideas you have even faster to download a PDF copy of decide already the five apps of decision making, as well as a downloadable worksheet on the subject so that you can make faster and better decisions in your life and business. Slide on Over to simplifying entrepreneurship.com five apps, that's simplifying entrepreneurship.com forward slash number five, the letter F and the letter S. All right, well, welcome back to this mini series that I've called decide already. It's all around the idea of better decision making. And it's one thing that we do as leaders of our businesses is make decisions. We want to help others make decisions as well. And that's why I like this little formula. Whether you're making the decision or whether you use this formula, share it with your team around the idea, starting off with the future, you know, what does the best and worst case scenarios of our future look like? Digging into those facts, as we know them, talking about the figures, which is today's episode, which is the numbers around the decision, and then the feelings, the soft part, the people, all of those pieces, and the feedback, getting wrapped around with good feedback from everybody who's involved in the decision and who you've empowered some of those pieces to, is vital in making this best decision. And today, as we dig into figures, there are so many things around figures, either you love numbers, or typically you don't, it seems to be kind of polarising, and I'm good at numbers, I understand them. And I can sort of simplify them fairly well, in most cases. But I don't love digging into the numbers as much as just like a innate sort of want to dig into the numbers, it's, I'll call it a taxing for me takes a little bit more of my energy. First of all, if you don't really understand the numbers, then you need to have somebody on your team that does whether it's your accountant, your bookkeeper, your CFO, whatever the case is, we're talking more about the bigger decisions here, not something that you're going to spend 100 bucks on. But you know, if you're going to spend 1000s, and 1000s of dollars, you want to dig deeper into these things. All of these, by the way, are the five apps of decision making, the more you need to spend on each app, the bigger the decision, and we haven't sort of talked about that in the past episodes. But think about the power of digging deeper into each one of these. And I think the reason that it came up here is because figures are something that a lot of business owners just sort of gloss over, I've done that in the past, I've made bad decisions, because I didn't dig deep enough into the figures around the decision that was needed to be made. And for those of you who love the figures, and you have you've acquired and accumulated all these facts and figures along the way, some people tend to get information overload, it's that decision, or analysis paralysis, just having to sift through that much data sometimes is very hard. So you know, there's this happy Millia in the middle that we've got to come up with in order to make the best decisions that both simplify the data and clarify it. Because you've heard me say this before, if you listen to the podcast for the last few years, clarity creates confidence, right, and confidence ignites momentum. And when we have clarity in the data, then we're going to have the confidence and confidence creates courage as well, right, which builds that momentum. And that's what we're trying to do here we're trying to have the courage to make a decision and build momentum within our business. So I wanted to talk a little bit about the importance of a cost benefit analysis. And I've kind of got that structured into four different parts. And the first one being resource allocation, risk management, decision, clarity, and then accountability. And it's this idea around resource allocation where it all starts off by conducting sort of this analysis, you can determine the most efficient way to allocate your resources. There's only so many dollars for any given decision, right? You want to ensure that you're making the right choice. But you also don't want to be stalled by not making any choice. That's the kiss of death for most business owners. But when you start looking at the resource allocation, it really ensures that you're investing in the areas of your business that will yield the greatest returns right boosting the bottom line. So you want to go back if you've got some history in some of this stuff, dig through some of your files. If you don't have hit s3, reach out to somebody that does find an expert find somebody who's done this before. And they can give you some guidance around this because it's also going to help you with that number two piece, which is risk management. The cost benefit analysis really kind of helps you identify the potential risks. But it also enables you to make the decisions that strike the right balance between risk and reward, minimising all sorts of potential losses and maximising your gains, right, that's the goal of the decide already formula. The next piece is decision clarity. As I mentioned, clarity creates confidence and confidence ignites momentum. But when you're faced with multiple options, the cost benefit analysis that we're talking about here really gives you the most advantageous choice. The deeper you dive into some of these things, the more clearer it becomes. And then once you're working through this stuff, if you don't have all the pieces of the puzzle, you can assign some accountability, right? You can have some other people help you out with this, by documenting the costs and the benefits for each of these parts of the decision, it really is going to promote transparency and accountability within the organisation for all the different pieces, right, whether it's the marketing side, the operation side, depending on your business, of course, but having everybody involved in assembling the numbers that they need to as far as their accountabilities with on the organisational chart, are really going to help you because that's the feedback piece that we'll talk about in a couple of episodes, you really need to have all that information, so that you can make the best decision and move the ball, right, we're trying to move the ball ahead and decide already with those bigger decisions that we are making in our business every day. So the next piece, and it tailors into this one to really is around evaluating the financial viability and sustainability of your decision here, because it's so crucial to that, of course, that it's viable, but also that it's sustainable, that your money is working. And your business's money is working towards a better future, right. And in order to do this, we've broken that down into a few different classifications. Two, first is your cashflow, cashflow kills, right. And then the next part is the profitability of the decision. And then the financial ratios if you have them available to you. And here's another piece of the figures that often isn't looked at. But what's the timeline? There's a amount of time and that's one of the figures you have to look at, right? How much time do we need, and we need to make sure that everybody involved in the decision understands that that's a figure of importance, right? So first of all, we're going to talk a little bit about the cash flow. A lot of people don't really understand, but there's a very big difference between cash flow. And profitability. Just because you had a profitable month doesn't mean that there's money in the bank, and you probably have had this in the past where you're like, hey, we made a lot of money on our profit and loss sheet. But where is it? Well, you know, tied up on the balance sheet side of things is usually where it is, and understanding what your available cash flow is going to be ultimately crucial. Because the revenues associated with each option will affect your short term and long term cash flow, right. And all of the years I've been in business and all the people I've talked to this is something I would say is probably the biggest problem as far as making decisions where people overlook the amount of cash they have available for that decision. So number two in this one was assess profitability. It's just such a critical factor in determining the financial viability of your decisions. And it's not easy to predict all the time. But use some other areas within your business that are similar to give yourself some projections in order to give you the confidence to move ahead or not. Just remember, it's okay, if you've done all this homework and decide not to move ahead, because what we're trying to do here with this five F framework is to actually make a decision. And sometimes making that decision is just saying no, right? If you have financial ratios, and many of you know, we're retailers and of course there's financial ratios in every business, but from a retail perspective, it's like let's dig into the return on investment of inventory. And let's dig into, you know, all sorts of different things when we start laying out how many people we think we need and how you know how many dollars per hour we need to make and sales are just such a variety of different financial ratios. And for those of you listening in different industries, you have your own financial ratios, but understanding them and plugging them into this new thing is incredibly important to give you the clarity, right. The last piece is really considering the time horizon right, it's so vital to consider the time horizon. Some options will offer short term gains but may not be sustainable over the long term, and others may require a longer time horizon to realise the full potential. Consider your business's stretch Dziedzic objectives and time horizon when you're making these decisions. And sometimes what I found in my decision making is I'll put timelines on them that are more advanced than I actually need so that it causes me a little bit of hurry up SNESs around some of these decisions so that I can get to the decisions quicker. And then we can activate some of them even faster, right and get them ready ahead of time as opposed to on time. So just to close things out, figures can be frustrating, right? Frustrating figures. But don't overlook them. Don't just trust your gut, it's time to dig into the data, when you're making specifically bigger decisions that have bigger implications, so that you don't get caught by conducting a thorough cost benefit analysis and evaluating the financial viability and sustainability, you'll be better prepared to make informed choices that drive growth and success in your business. So the next time you think about a bigger decision, and even the smaller ones, I think the smaller ones, we kind of automatically just put the figures together in our head. But if it's more than just a quick calculation of $20 or under dollars, whatever the case is, it's time to dig down into those figures. Find out how they aligned to the facts, ensure that they align with the future that you want for this decision, so that we can go and better explain to our team get their feelings and their feedback on it and make this decision to move ahead. Now go and make it a great day.

Unknown: 12:16

An ironic media production visit us at our ONICK media.com