Should we spend the money?
A business plan is essential in determining if a new venture is worth pursuing. It counts the costs of a decision and the returns or payback that will be realized. Is there a tool that works well for smaller business decisions that come up on a more frequent basis?
Decisions like…….
Should we hire someone?
Can we increase our pricing?
Does purchasing equipment make sense?
Should we expand our facility?
Can we establish a new location?
Should we pursue the proposed marketing plan?
Does it make sense to hire a new salesperson?
Questions like these can present themselves on a weekly basis, depending on how quickly we are moving in the marketplace.
I would recommend a 2-step process in determining your answers:
- Use “macro-math” to help make quick assessments of business opportunities or challenges you are facing. Make simple assumptions about the costs to be incurred and the savings or incremental sales to be realized.
If this initial math looks promising, move to step 2.
- Use Activity-Based Costing (ABC) to perform a more detailed analysis of the opportunity.
If the opportunity still looks promising….. the financial return is attractive, it is consistent with your vision for the future, you have cash reserves to support the decision, and you are not anticipating significant Economic Changes that could change your company’s position……then it may make sense to move forward.
What other ways do you look at potential investment decisions?
