In the complex and challenging world of business, it can be tempting to rely soley on your instincts and assumptions when making crucial decisions.
After all, you should “always trust your gut”, right?
Well, not in isolation.
When it comes to operating a business,
trusting your gut without considering the data
is like setting sail without a compass and hoping for the best.
While good instincts through experience is greatly beneficial, in this article, we will delve into:
- the reasons why it is imperative to base your business decisions on concrete numbers and data, rather than solely relying on intuition, and
- how to implement a more informed data-driven approach to business decision-making.
Why business decisions should be based on data
“Know your numbers. It’s a fundamental precept of business” – Bill Gates
While intuitive decisions certainly do have their value, neglecting indicative data will inevitably lead to major consequences for a business. Worse is, the consequences of these business assumptions may not be felt for six or even twelve months down the line and, by then, can have a serious impact.
For instance, it’s risky making decisions like:
- hiring a new team member
- setting services prices
- entering new markets
- expanding into new territories or
- upgrading the workplace
without performing enough data-led due diligence first. If these decisions don’t pan out, they can cause significant risks to your business down the track.
A gut feeling is good, but it’s far better to support
that feeling with accurate data to mitigate risks around
biases and incomplete information.
Let’s take a look at 5 specific business scenarios that demonstrate the reason for data-based business decisions.
1. Assessing profitability and hidden costs
Before embarking on a new client project, it is essential to evaluate its actual profitability. After all, profit is what will ensure that your business is sustainable in the long run and in some cases, the numbers may not stack up as they appear on the surface.
Simply relying on intuition may cause you to overlook hidden costs or risks, and going ahead could end up costing your business significantly.
Unfortunately, many business owners and managers say an eager “yes” to every customer without delving into the data first.
By engaging your finance department and your own CFO, their financial analysis can break down the full financial aspects of the decision, granting you strong insights to see if the numbers really do stack up so you can say “yes” confidently!
2. Determining optimal price increases
Now that you know the actual costings and profitability potential of your projects, it’s just as important to be able to calculate the right pricing structure and how to manage cost increases.
Raising your prices can significantly impact your business’ bottom line, but simply plucking a figure based on a guess, a standard number (like 10%) or copying the market can leave you at risk; your increase may not keep up with rising costs or may turn customers away.
Accurate financial data allows you to determine
the ideal percentage price increase that balances
prices with the cost of goods sold (COGS) and customer satisfaction.
Collaborating with your finance department to understand your business data can help you establish the most optimal price adjustments.
3. Justifying salaries and pay increases
When considering salaries and raises for your employees, it is crucial to have a solid understanding of their actual value. While it’s easy to make preliminary assumptions about how much one employee or another contributes, it’s the data that tells the full story.
- Do you know how much each sales executive or plant worker costs versus how much they earn for your organisation?
- Do you have a gender pay gap?
- Could you explore bonus structures to de-risk your cost base?
- How do your remuneration levels and structures compare to your peers?
Again, your finance team can assist, this time by conducting industry research and benchmarking exercises, such as reviewing performance and results achieved, reviewing salary bands or reviewing gender pay gaps to enable you to determine appropriate compensation levels. Relying on this data ensures that salaries and increases are justified, fair, and aligned with both your employees’ contributions and the overall financial health of the business.
4. Evaluating recruitment costs and employee ROI
Hiring new talent is important to any business, but it also comes with financial implications. Understanding the true cost of the recruitment journey, including advertising, interviewing, onboarding, and training, is essential.
So how do you make the most informed decision both in terms of the methods of recruitment and who you decide to recruit?
You guessed it – data. More specifically, accurate data from your finance department can help you calculate employee expenses and assess the Return On Investment (ROI) associated with each new hire.
5. Assessing software investment cost vs return
Subscription software is everywhere in business today and it can be extremely costly. That’s why it’s important to ensure you make the right software choices, regardless of how much you may have invested in the past.
Yes, you may well have spent significant time and money on your software to date, however, if it is still not providing the accuracy and efficiency you need, keeping it around will only incur greater costs for your business in the long run.
Instead, ask your finance team to help you work out what a new system would achieve in terms of improved time, efficiency and accuracy and to compare this expense with the costs that will be incurred should you decide against a change.
Change can be daunting but often it can be the best thing for your business.
Why do you need a skilled finance team contributing to the conversation and business decision-making?
It really pays to delve into the details to get a more accurate picture of your business when it comes to decision-making.
That’s why a strong finance department is essential, as they are there to receive, analyse and present business data which is integral to making well-informed choices.
But where do you find a capable finance department?
That’s where Dexterous can help
We provide an outsourced finance department solution that works for you.
When it comes to navigating the complex landscape of data-driven business, we are your value-add solution, offering:
- In-depth cash flow forecasting so that your business can stay above water
- A scalable, flexible and innovative solution
- A comprehensive team of industry specialists who can manage your finances according to your unique needs.
Do you want an expert finance team that helps you proactively manage your cash flow and financing?
At Dexterous, we’re your growth-focused outsourced finance department.
We provide you with a modern and effective alternative to building and running your organisation’s finance department.
With our Financial Department as a Service solution, we offer you full access to our team of corporate finance professionals, from CFOs to Bookkeepers, Accountants to Payroll, Receivables to Payables and beyond. We want to empower you to build a bespoke financial team tailored to your business’ needs and one that collaborates with and grows alongside you.
We also equip you with a strategic approach and cost-effective function not just to address the challenges of a potential recession today, but to help you achieve more growth in the future by better navigating the competitive fundraising and lending environment.