Small business, big decisions: mastering the art of financial decision-making

Megan Dedekind | 18 December 2023

Megan Dedekind is an area manager for Business Partners Limited

Some of the most important decisions that face entrepreneurs relate to financial management.

In small businesses, where the pace of work is often faster and the workload itself more demanding, a miscalculation can have serious financial consequences.

The best way to get ahead and keep the engines of a small business running, is to stay on top of the numbers. Keeping your finances in check will ensure you can make decisions based on facts, rather than feelings.

One of our clients recently attested to the fact that small business owners are often faced with scenarios that call on them to take decisive action, and quickly. Decisions made today can have major implications for what business looks like tomorrow.

When money is involved, entrepreneurs need to guard against complacency. Ideally, at any random moment, business owners need to be armed and ready with a full, comprehensive overview of their venture’s financial standing. Having this information close at hand can make all the difference.

Review your cash flow

Before making any major decision that could affect your business’s financial position, it’s important that you, as a business owner, review your cash flow. Part of this process involves looking at key metrics such as operating cash flow or net cash generated from operations.

As a rule of thumb, operating cash flow should be sufficient to support the business’s activities without additional funding, outside investment or loans.

Another key metric to review is your business’s total available liquidity or the aggregate sum of all its cash and cash equivalents. Understanding how much cash a business has, which can be mobilised immediately, is a good way of gauging its financial standing before making major decisions that could impact its liquidity.

Forecasting as a financial planning tool

Once you have a clear idea of whether your cash flow can currently support a steady and manageable inflow and outflow of money, the next step is to conduct a cashflow forecast.

To do this, you will need to review the business’s historical financial data, including income statements and balance sheets.

You also need to analyse market data and trends to estimate the business’s future income.

Factors that can have a direct influence on the cashflow forecast include seasonality – whether the business experiences higher sales volumes during specific periods, as well as possible variable expenses that may arise, such as equipment repair and maintenance.

These two steps will give you, as a business owner, a clear indication of where your business is, and where it’s going, making it easier to make decisions based on factual information.

Connect with an expert

Gathering the information needed to review aspects of your business such as your cash flow, is something anyone can do, regardless of their level or experience or financial acumen.

Analysing the data and understanding what changes may mean for the future of the business, however, may require help from a professional.

A business development specialist, for example, will be able to take a holistic view of a business, considering not only financial aspects but also operational, marketing and governance factors too.

Consultants can also play a key role in helping small businesses understand the risk they face and how to mitigate any threats to business continuity. Every financial decision comes with a measure of risk, which needs to be carefully weighed up against the potential for reward.

Gaining an outsider expert’s opinion will give you, as a business owner, a sounding board for your ideas and help you to identify any potential pitfalls and blind spots that stand in the way of growth.

Considering the right information is essential for maintaining the financial health of your business. Just like we, as humans, need to go for annual medical check-ups to detect any possible health issues early and minimise them, you, as a business owner need to consistently review the financial health of your business and understand the current state of your finances and what needs to be done to achieve all your financial goals.

Using a financial expert or mentor to assist you with the financial reviews and analysis will help when it comes to doing accurate financial forecasting, cash flow planning, investment planning, and any other financial need that might require deeper analysis and understanding.