Financial resilience – Is your business really ready?
To properly pursue your ambitions, it’s vital that your organisation is financially resilient.
Feeling confident that you can navigate potential challenges and capitalise on opportunities relies on having reserves to call upon when needed. The future is unpredictable, so giving yourself the best possible chance, whatever arises, is the best strategy.
Managing your finances appropriately means you must focus on two things:
1. Current investment – What your business needs to push on or solve any issues now.
2. Possible budget – Across all the outcomes that could take place, do you have the available money to cope, or better still thrive?
This second point is understandably complex, but don’t fear; this article outlines some actions you can take to ensure you are balancing these focuses.
A limiting mindset – Lag over lead
An issue that many organisations have is dedicating their attention to ‘historically focused’ data. By this I mean numbers such as profit and loss from a previous month, or last year’s turnover. Whilst it can be effective assess previous performance, this data is often reviewed too late. It’s no good admitting you have underperformed, far better to know you are underperforming and work towards remedying this.
To achieve more immediate decision making you should favour lead metrics over lag metrics.
Lag metrics: The outcomes that have taken place and cannot be changed.
Lead metrics: The indicators that demonstrate the ways things are going.
Favour lead metrics, so you can change approach to match your targeted result. This might include views on your website, or number of visitors to your shop. Initially, it may not be clear what numbers you should be focusing on, but by assigning regular, specific time to assessing your data, it will become apparent what your key performance indicators are and how they’re ultimately affecting the outcomes.
What’s really making the difference?
A missing element – ‘What if…?’
No one can predict the future, but the trick to making yourself seem like a soothsayer is to cover all bases.
Think of all the likely (and even some of the unlikely) outcomes of your current situation/project. In a best-case scenario, how much money will you need and in contradiction, if all goes wrong what will the required spend be? In most cases, it’s best to reserve an amount somewhere between these figures, probably closer to the negative scenario than the positive, dependent on how assured you feel.
With the increasing influence of technology, your financial software should allow you to forecast ahead, so you can analyse the potential outcomes. An important part of this is keeping your records up-to-date, otherwise you won’t be seeing a realistic picture. This proactive approach will reduce the stress and inconvenience of bumps in the road, where a more reactive strategy will take its toll on both you and your company.
A different perspective – Diverse opinion
Keeping your perspective as broad as possible is difficult to achieve alone. When you are particularly involved with certain activities ‘seeing the wood for the trees’ can be near impossible. This is why well-established businesses have a board of directors, each with an individual specialism, to offer a range of opinions.
Objective decision making relies on finding ‘critical friends’ inside and outside your business.
If you are planning a new project, talk to the people involved to see how they might approach it. This doesn’t mean you have to take their advice, but will mean you have considered the possible approaches. Beyond this, it might be that you need to speak to an external professional who has no association with the business, such as an accountant, consultant, or coach. They may be able to identify avenues of opportunity and even potential threats that you had never thought of.
Remember, adding an additional level of scrutiny to analysing your data can seem time consuming, but will pay-off in the long-run.