Starting a business is like planting a seed.
Seeds need to be tended. If a gardener provides the right climate, amount of water, fertilizer, pruning and propagation, one seed can flourish into a prize-winning garden. If neglected, over-watered, under-watered or pruned too soon, the gardener would be lucky to see a single plant sprout. In a similar way, a business plan cannot take root and develop on its own.
It needs the right amount of care, encouragement and hard work at the right times and in the right places in order to produce a hefty crop of profits.
Like the gardener in this example, the role and responsibilities of 'CEO' are numerous and never-ending. As a CEO, you must maintain a thorough understanding of the company's complete inner-workings, strengths and struggles, foresee problems and overcome daily challenges. In addition, you must address all of those immediate matters while also setting a strategic course for the future. Handling these responsibilities with success requires you to make good decisions every single day on behalf of the business.
Decision-making, however, is not always as simple as deciding between ficus plants or ferns for your office.
Five Steps to Start Making Better Choices, as CEO, Today
1. Stop Reacting! Plan Ahead, Instead
When trying to lead a business, it can be easy to mistake reactions for decisions. Be careful not to make this mistake, as it can mean the difference between achieving success and closing your business.
CEO's and business owners tend to make bad decisions when reacting to cash flow issues or operational problems. When you plan ahead using actionable financial intelligence and make more strategic, data-driven decisions, you're in a better position to control the outcome of a potential situation or avoid a potential problem.
When a CEO constantly avoids making choices, the business is kept in a perpetual state of clean up, scrambling to pick up the pieces, rather than sprinting toward the next goal.
Be proactive in making decisions for your company in order to avoid pitfalls, while also anticipating and leveraging every opportunity.
2. Develop and Use a Standard Process for Proactively Making Decisions
In business, according to the The Strategic CFO, proper decision-making requires a seven-step process:
Identify the Decision
Identify Potential Options
Weigh the Evidence
Choose a Path
Evaluate the Decision
Following this process ensures you make strategic decisions, rather than take reflexive action. This process allows CEOs to make objective, rather than subjective decisions. It also supports logic, rather than impulse, in decision-making.
3. Validate Your Business Model
If you do not truly understand your primary channels of revenue, then you do not truly know what type of business you are operating, which means you cannot make good decisions for it. For example, a window washer who has invested in more squeegees might find (to their dismay) they make more money selling their patented washing fluid than they generate by actually washing windows.
An interior designer who spent big on marketing their consultation services might discover their business brings in more money through the sale of furniture and decor, rather than through consultation.
Management accounting reveals your company's strongest revenue generators, indicating into which parts of your company you should invest revenue.
4. Get a Handle on Cash Flow
Cash flow shortages and the challenges they present are the most common reasons CEOs are forced to make reactionary decisions. Cash flow problems occur when more money flows out of than in to a business.
During a serious cash flow shortage, a company might not be able to cover all of their expenses, such as payroll, rent and their cost of goods sold. Serious cash flow shortages put companies out of business. During these sorts of dire straights, business owners and CEOs are often forced to make bad decisions in order to keep the business afloat during a cash flow shortage.
CEOs who make good decisions for their companies actively forecast cash flow in order to predict and prevent potential challenges.
5. Implement Policies and Procedures That Enable Strategic Planning
Bolster your back office's bookkeeping and accounting practices with policies, procedures and technology that automate and facilitate your ability to generate the timely and accurate financial reports from which you will measure and track vital key performance indicators (KPIs). These KPIs act like a scorecard for your business's health, growth and future.
Having accurate financial data at your fingertips allows you to measure profits and profit margins, optimize pricing and streamline operations to grow your business and increase profits.
Your bookkeeping and accounting solution, should produce accurate and up-to-date financial and management reports that provide the financial information you need to make sound strategic decisions.