Financial planners make thousands of business decisions on an annual basis. And while only hindsight is 20/20, there are ways to improve your decision-making that will give you clarity before you take action.
1. Identify the issue
Einstein once said that if he had one hour to save the world, he would spend 55 minutes on defining the problem and only five minutes on finding the solution.
When confronted with a problem or issue that requires a decision, practice owners need to draw a line under exactly what the issue is. Defining the issue will sharpen your ability to make a shrewd call on the problem, rather than letting extraneous factors influence your actions.
2. Employ double vision
When making a decision, practice owners need to keep both their immediate and future goals in mind, says Jon Hemming, director of Unity Management, a business planning and consultancy organisation.
“The rule of thumb is to take a long-range perspective as well as a short-term perspective on the decisions that you’re making. I call it double vision. So you have a long-term strategic intent – that might be to grow the company 30% year on year and employ another five people over the next three to five years, increase market share and create a certain value for the business.
“And in the backdrop of that strategic long-term intent you create a 90-day action plan, which is a short-term vision. And this is where you actually make better decisions around the operation for the business and the activity that you need to do to achieve your long term goals.”
According to Hemming, without double vision it’s virtually impossible to end up with a business that you want.
“If you just look short-term and around the money that you’re spending it can be very knee-jerk reaction to things that are happening, you lose sight of the big picture as to why you’re in business and then what happens is you continually make bad decisions based on reacting to what’s happening around you instead of strategically thinking about where you want the business to be.”
3. Cost-benefit analysis
Another tool practice owners might find useful when faced with a difficult decision is cost/benefit analysis. This is a methodical way to determine whether a possible course of action will yield positive or negative results.
“Business owners have a real challenge separating the true benefit of the dollar spend that they make. And in these times where cash flow is a premium it’s really important to understand what result you’re going to get from every dollar spent,” said Hemming.
The advantage of doing a simple cost/benefit analysis is that allows a business owner to “separate out the intrinsic benefits of every dollar spent, so you can prioritise your spend against getting the right outcomes for your business,” he added.
But Hemming also advises business owners consider the benefit and costs of an action that isn’t taken.
For instance, if a financial adviser spends $1,000 on office equipment, they are effectively not spending $1,000 on marketing. An analysis needs to determine how this affects your business in the long run.
4. Avoid indecision
One of the biggest mistakes business owners make is failing to take any course of action. According to Theodore Roosevelt, in any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.
Hemming suggests that the window of opportunity closes when you take too long to make a decision.
“If business owners continually procrastinate the options available to them are often reduced. I’m not saying make a decision for the hell of it, but move forward. Businesses that just sit passively and don’t make decisions often their choices disappear.”
5. Gut instinct
Richard Branson is the poster boy for following your gut instincts. According to the rebel entrepreneur, “A business should be involving, it should be interesting, and it should exercise your gut instincts”.
That niggly feeling, your ‘spidey senses’, that tingle in your mind – gut instinct is that hard to place sense that something is right or wrong.
But where does ‘gut instinct’ come from? According to psychologists, gut instinct comes from experience. When faced with a situation, your brain takes a series of mental shortcuts by rapidly searching through your mental files to find an analogy that best matches the current situation.
For instance, an employee tells you they’re doing fine, but you know that they’re not. It could have been a fleeting look on their face or something about their voice that matches with a previous experience in your memory bank that had similar pattern. Whether you’re aware of it or not, you draw on that experience to make a conclusion about the situation in front of you.
While Hemming acknowledges that gut feeling is critical, he also advises practice owners to back it up with research.
“You have to have a good gut feel. But more importantly you’ve got to support it with the facts. At the end of the day, you can make a better decision by having the right information on board. If you can’t measure it, you can’t manage it,” he said.
“Use your intuition, which is super powerful, but then go and do some market research to substantiate that gut feeling. And when you’ve done your research go out and nail your market.”
7. Expert advice
When you’re stuck, why not use a lifeline? Getting advice from a friend, mentor, or professional consultant is a great way to crack a problem you just can’t work out on your own.
“It’s one of the most important things business owners can do. Having someone objective that’s outside of the business is absolutely vital,” said Hemming.
8. Check the solution
You won’t always make the right business decision. In 1962, Decca Records rejected The Beatles, saying that “guitar groups are on the way out” and “the Beatles have no future in show business”, which just goes to show that even big businesses get it wrong sometimes.
“A lot of SMEs are often dealing with missing and incomplete information. They don’t always have the systems and support and information, the quantitative information like some of the bigger companies do,” said Hemming.
“So the name of the game is to make the best informed decision that you can, but then have the ability to then review it and check in that it is the right decision.”
Decca Records may have lost out on The Beatles, but soon after realised their mistake and signed The Rolling Stones.
“If you’re continually not making the right decision then you either need some more information or you need to have different people around you supporting you in the decision making process or looking at it in a different way,” said Hemming.