Ghostbusters, LLC has been serving Booville for five years and is steadily growing due to a rampant ghost problem in the area. In fact, word is quickly spreading about their efficient ghost busting techniques and they are now getting consistent requests to service the adjacent neighborhood of Howlville to help with the beginnings of a werewolf problem. The business owner is excited about this new opportunity for expansion, but also nervous about expanding too quickly. Especially considering the fact that hundreds of ghosts reside in Booville, but there have only been a handful of werewolf sightings so far.
She makes a pros and cons list to help make the decision:
- Additional revenue stream (and diversifying can be good!)
- Satisfying customer need
- Already well positioned in market to respond to customer need
- Will take focus off existing revenue streams (have to invest existing revenue into the new market)
- Incur start up costs before it’s generating a consistent profit
- Possible brand confusion (ghosts vs werewolves)
What should this business owner do? Should she address the need in the marketplace or continue to hold steady and focus on their current service area and offering?
Is Your Financial Information Ghosting You?
If you’ve been in business more than a day, you’ve had to make tough decisions like this one. It’s highly likely that your list of pros and cons has a ghost problem of its own and you aren’t seeing the complete picture. Is there a con that should be on the list but it’s a well-hidden financial ghost? Or perhaps the weight of each pro and con needs to be considered differently, and you don’t have the right financial ghostbusting equipment to identify it correctly.
Enlisting the expertise of a trusted financial ghostbuster can help you see options and risks you don’t normally see when making a decision. You don’t need to be afraid of financial ghosts! Contact me today to ensure any financial ghosts hiding in your books are caught and identified before making your next big business decision.
4 Financial Ghostbusting Tips To Make Business Decisions
There are a few tools that every business owner should be using to help catch their financial ghosts to make the most informed business decisions. Here are the top four from your trusted financial ghostbuster:
Weigh the cons heavily. After you’ve made your pros and cons list, focus on the cons and rank them in order of severity. To help envision this, let’s consider Ghostbusters, LLC again. They are trying to decide if they should service Howlville and catch werewolves for its residents. They don’t currently catch werewolves and there are only a handful of sightings, so a con is that they will have to invest in new equipment, hire new people, and train them to lure and capture just a few werewolves. These are examples of start-up costs – it will cost the company money before they can generate any revenue, and that may not be recouped for some time.
On the other hand, if they decide to not expand, they won’t be satisfying a clear customer need and may be missing out on lost revenue that they are well positioned to earn. Looking at these two options and weighing their severity, which do you think is the better choice? Choosing the less risky, conservative option is likely the best financial decision. (You can learn more about the conservatism accounting principle here.)
Enlist a “devil’s advocate.” Making your pros and cons list can and should be a team exercise. A great practice is to treat your business’ senior leadership as your “board” and have them weigh in on the decision. Assign one person the role of “devil’s advocate” and ask them to intentionally find all possible cons. Knowing that it’s one person’s job to be the devil’s advocate takes away any hurt feelings or shyness about bringing up the negatives. You want to poke as many holes as possible into your idea before moving forward to be well prepared for what you decide to do next.
Carefully consider insurance changes. As a business owner, you should always be proactively preparing to mitigate risk, and one of the ways you can do that is to ensure your business is covered in case something goes south. Ghostbusters, LLC is currently insured against employees getting slimed, but with the addition of a werewolf catching service, you would need to extend insurance to cover bites. That expense might be the deal breaker as you consider the new revenue weighed with the cost. And will you be trying to hire someone who is both willing to get slimed occasionally…and possibly bitten? Does such an employee even exist?
Conduct financial modeling. Pulling together the start up and ongoing costs of a new path for your business and modeling the long term financial outlook is the best way to know if the decision is best for the financial health of your company. Outlining the costs and projecting revenue will give you a good picture of what the future will hold if you decide to move forward… or not.
Are you ready to call your trusted financial ghostbuster? Whether you need help finding and identifying your financial ghosts or help with financial modeling to make the best possible business decisions, I’m ready to serve your business.
Huxley CPA ain’t afraid of no ghosts!