Where to Invest and Where to Cut? Smart Decision Making Based on Dispassionate Financial Analysis

invest or cut costs

Where to invest a company’s finite resources is one of the most important decisions faced by business owners—and where they spend a significant amount of time. When companies have poor visibility of financial information, it undermines management’s ability to make informed decisions on where to invest money and where to cut spending.

Choosing Where to Invest

Successful investment management strategies rest on the anchor of good financial information. It is critical that decision makers have accurate and reliable financial information (historical and projected) on the performance of various departments, product lines, services, etc. Only with this visibility can decision makers be provided with clear choices which enable them to make strategic decisions about which areas should get more resources and which areas should receive less based on dispassionate hard facts.

Cost Cutting vs. Cost Control

The best cost cutting strategy is to have robust cost control in place from the beginning, making a cost cutting strategy superfluous. But let’s face it, even the best run businesses run into snags and bumps which require a cost cutting program at some point.

Across the board cost cutting (e.g., mandating each department, business unit, product line, etc. cut 10% of all costs) is never the right approach. Rather–similar to determining where to invest–when deciding where to cut costs you ideally want to have 100% visibility of direct spend (e.g, raw materials) and indirect spend (e.g., rent and utilities) across the entire business and the ability to allocate that spend to the various products, services, or strategic priorities they relate to.

It should be said though, cost cutting is not an end game. Without a good cost control program, cost cutting will be a futile exercise as any gains made will eventually reverse as cost creep back into the business.

The Budget

The budget, when used correctly, is the single best tool for managing your investment plan and controlling costs. It is important that the budget is based on reality and that there is a clear understanding of which line items are impacted by various actions the company intends to take.

It’s also important to manage the budget by individual line item, not by department, unit, or other overall totals. This is because timing differences in the accounting for various transactions can give the appearance of favorable variances, offsetting other over-budget line items; however, when those timing differences catch up to you, it may be too late to take corrective action, or at a minimum, you are months behind.

The Role of Accounting

Accounting plays a central role in bringing transparency and visibility to key financial information and in supporting budget performance analysis. The bottom line is that having accurate, reliable and appropriate financial information is essential if you want to make the best strategic decisions for your business.

Improve Decision Making Through Visibility of Financial Information

At Signature Analytics, we work with our clients’ management teams to ensure they have the financial information they need to make the best decisions for their company. This is accomplished by producing a detailed understanding of the cost structure of the business, as well as the key performance indicators associated with each product line and revenue stream of the company. This analysis is then used to improve budgeting and develop a robust cost control program.

We can also provide accurate forecasts and budgets that enable our clients to properly manage costs on an ongoing basis and improve cash management strategies. All of these accounting and financial reports empower our clients with the financial information they need to make smarter decisions based on dispassionate financial analysis.

Want to learn more about all the ways Signature Analytics can help improve your decision making through visibility of financial information? Contact us for a free consultation.