Making Financial Decisions
We all make financial decisions every day. Whether we are deciding which restaurant to buy an Oreo shake from or if your company wants to buyout a multimillion dollar startup. Whatever the case may be, we are constantly choosing how our money is spent. We usually think through these decisions because of a couple things:
- We don’t like excessively throwing away our money by paying too much for something that we can find less expensive elsewhere.
- We want to find some advantage in our purchasing power of the product of service.
We go through this process, whether big or small, of thinking through how to spend our money all the time, (I think we probably make more of the first.) Since all human behavior is geared toward us acting out of receipt of a benefit, our choices will always resonate in our mind on what we will get out of them.
Trusting our gut instinct is a common feeling among entrepreneurs. They have a feeling, for example, that spending X amount of dollars for a marketing campaign will create a substantial profit for them. Relying on your gut is something you should use because our unconscious mind is smarter than we think.
Now, how do we then calculate which decision will get us the most benefit? Making decisions based on financials will give us confidence and direction. This is where trust is interjected.
What does trust have to do with making financial decisions?
I am helping a new client get his book keeping system organized so that he can start using his financials to make educated business decisions. So far, he has only been able to go on his gut feeling.
His previous system was that he hired a CPA firm to handle his payroll, book keeping, sales tax, and income tax work. The CPA firm had access to his info and they updated his books each month. They made sure the payroll and sales tax returns were filed on time each month and quarter. My client didn’t have to be bothered with the mundane, boring, and time wasting aspect of payroll, sales tax, and book keeping. His trust was in the firm to keep filings accurate and updated so he would be able to look at the financials and in turn make certain decisions.
Amazing! Isn’t that what every business owner wants? A system that does what it’s supposed to and they don’t have to waste energy on it. After all, you don’t go into business to file payroll or sales tax returns. You aren’t in business to do your own books. They are the necessary “evils” of being a business owner after all. So what’s the problem?
We are a huge proponent of outsourcing these tasks. In fact, that is our business. We provide jobs to employees because business owners outsource these tasks to us. The problem though isn’t the fact he trusted the CPA firm, it’s that he essentially abdicated his responsibility. The attitude was, “I’m paying these guys to get it taken care of so it will get done.” A business owner has to be involved in his finances. You have to look at your financials at least monthly. So even though you probably should outsource these tasks, you can’t abdicate your responsibility. Stay involved enough to know if the books are getting done right and that your profit & loss statement, balance sheet, and statement of cash flows reflects your business.
Since reviewing your financials often is key, it is also important to recognize that what you have outsourced is still entirely a part of your business; don’t eliminate your responsibility to look after it. Make sure it is being done properly. As we are regularly reviewing what we have outsourced, we can rely on our financial analytics to determine what choices will ultimately reward us with the greatest benefit.
Now that we have the two options presented, to be involved or not, what’s the best action to take? I think we know. Studies show that to choose between two options based on instinct alone, participants made the right call up to 90 percent of the time. What does your gut tell you?