Making Good Business Decisions
Business owners and managers are constantly asked to make decisions. Some decisions are simple and the correct answer is obvious, while others can be very complex and the answer is anything but clear.
Where a business is involved, these decisions will generally involve financial issues, sometimes directly and sometimes indirectly. The first step in making a good business decision is to ask if the issue at hand will in some way either increase income or reduce expenses. If it will not do either of these things, it is not needed in the business.
Sometimes it is easy to see how a particular issue will contribute to sales (add income) or reduce expenses, but other times it is not as obvious. Let me give you a couple of examples of things that may not be obvious on the surface as income generating or expense reducing.
The decision to sponsor a local Little League baseball team needs to be considered as a potential income producer from the new business that might be generated from the positive exposure of your company in the "right places." The cost of the sponsorship needs to be weighed against the anticipated gain in business to see if the investment is worth it.
Another example would be whether or not to have a company holiday party. The party certainly does not bring in income; however, it would raise employee morale, which might improve working attitudes and therefore improve production efficiency, which could very well reduce production expense.
In an ideal world, business decisions are not about personalities or human issues. As much as possible, business decisions should be kept on a black-and-white, emotionless level. However, we are not always functioning in an ideal world. People have health or family issues, personal scheduling conflicts, car trouble, personal financial issues, and the like that contribute to the dynamics involved in making some decisions. It is important for the business owner/manager to be clear on the fact that, if these personal and emotional factors are allowed to be a part of key business decisions, there may be consequences that result that are not part of the "increased income-reduced expenses" formula.
One way to deal with an issue, and to better guarantee that all factors have been considered in making the final decision, is to use a balance sheet system originally credited to Benjamin Franklin.
Draw a line down the center of a page. On one side list all the "pros," or positive things, concerning the issue being decided on. On the other side of the line list the "cons," or negative things, pertaining to the issue. List everything you can think of, large or small, simple or abstract, until you feel you have everything on your paper. Now set the page aside.
Return to the balance sheet later, look at it with a fresh viewpoint and evaluate what you have written down. This system helps you to be sure you have considered all sides of an issue, and helps take the emotional factors out of the picture. Some decisions might actually involve creating two balance sheets, one for the pros and cons of making the decision to do something, and another for the pros and cons of not doing it.
Consider the following example: If you are trying to decide whether or not to buy a new truckmount, you could make one balance sheet listing all the positive and negative aspects of purchasing the new unit. This would include pros such as less downtime, improved production and better image, and cons such as lease- or finance payments and new training requirements. Another balance sheet should be made listing all the positive and negative aspects of not purchasing a new unit, instead keeping your old one. This would include pros such as no new payments and familiarity with the equipment, and cons such as more repair costs and higher maintenance.
When the balance sheets are completed and spread out in front of you, you will have the tools to make a better, informed decision. Remember, the decisions you make must either increase income or reduce expenses, or they have no place in the business.