Most human beings are natural forecasters. Our ability to think ahead when making decisions is one of the things that set us apart from other animals. For example - when a cat sees some food, the cat generally eats the food, without much delay
By comparison, when a person sees some food they consider many things, such as:
- who the food belongs to
- what type of food it is
- how has eating that type of food gone down in the past
- personal health goals
- what time it is
- how the human is feeling at that particular point in time
The person will weigh this all up before deciding whether to eat the food. It is our ability to think ahead more than one step, that makes us better decision makers than cats - generally.
But our decision making skills are by no means perfect. Some of the things we consider in making decisions are based on logic, while some are based on emotion. A person might choose to eat food that is bad for their health, because it will give them an emotional uplift in the short term. While this might be illogical, it happens because humans do not always make decisions rationally, we factor in our emotions. This is of huge relevance to the business owner/operator.
Generally with SMEs, the owner operator is the key decision maker. The decisions made on a daily, weekly, or monthly basis have a direct impact on the financial health of the business. Yet often the decisions are made due to emotional reasons. I have met very few people who have overruled their emotions completely.
Despite our emotional limitations, you can generally draw a relationship between the time spent on business planning vs the strength of business decisions being made. A business owner/operator will generally make better decisions when they are executing well thought out business plans, as appose to “winging it”. Winging it leaves too much room for emotions to move in and unduly influence the decisions being made.
In my mind, business planning and financial forecasting are almost identical terms. A financial forecast is simply a business plan expressed in money. If you would like to learn more about taking control of your cash flow, check out our recorded webinar. Click here to find out more.
There is something magical that happens when we sit down with owner/operators and create a financial forecast with them. All of a sudden, they see the financial implications of their plans and as a result, their plans change. Every time. It is the act of visualising the plan in financial terms that leads the business owner to rethink their plans, to refine them, and to improve them from a financial perspective.
Without looking ahead from a financial perspective, business owner/operators are similar to stray cats – just surviving from one day to the next, continually searching for something to eat.