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Financial Decision Making

Hamish Pryde • October 16, 2012

How do we undertake financial decision-making? 

There are two parts to the decision making process. First, you need the right information. Do you have up to date financial data. Relying on last years, annual financial statements are of limited use if they are 18 months old. What has happened in the last 18 months? Have you the ability to obtain up to date financial information or do you need to update your tools. Is there a need for a software solution or a process change? Today there is software in the clouds. Funny term, but what it means is that the software is run over the internet. You can access it anywhere an internet connection is. The information is instant and current; provide you keep it up to date. Information is powerful.

Non-financial information should be used also. This includes reviews, promotional material, talking to others who use or have experienced the product or process. Seek out testimonials from raving fans of the product or process. If you are investing in shares or finance companies do you invest based on return alone? Smart money would say no.

Interpretation of the numbers is vitally important. Get an expert, perhaps a chartered accountant or a certified financial planner for investing advice to review what the numbers mean. Experienced people in this regard know what to look for and have experience to interpret what it means for you.

The second part of any decision making once you have the facts and numbers is to use your brain. By that, I mean:

B   Benefits, what are they

R   Risks, what are the risks involved

A   Alternatives are there alternatives to buying this piece of equipment for example, lease, and buy in ready-made etc.

I   Intuition, this is the gut feel. Does it feel right? Could you explain on national TV why it was a good idea?

N   Nothing, doing nothing is a valid option.

Financial decision-making is all about good reliable information interpreted correctly and on a timely basis.

An example of financial decision-making can be what to do with your lotto winnings? After the initial excitement has worn off, perhaps after the new car, wardrobe and world trip, you decide to invest your money. Do you invest where your friends tell you? Do you invest in something with high returns? Remember high returns and high risk often travels together. Warren Buffet is the most successful sharemarket investor in the world (so far) and he always states it is important to understand what your money is being invested in.  This applies to everything. Understanding is the key.

After you have gathered the necessary information, consulted a professional, considered the risks and alternatives, it feels right, then you have at least diligently followed a process to arrive at a decision that was right at the time.

By Hamish Pryde September 11, 2024
Paper is everywhere. We spend a lot of time and money moving paperwork around. But with today’s technology it is now possible to get rid of paper entirely. Digital documents are simpler, easier to store and send, more searchable and permanent. How long does it take to post a document to somebody via the ole stamp and envelope method, that is snail mail? It is more efficient and timelier to email the document. How many times do you go to print a document at home and find that your printer has run out of ink? Why do we still hold onto printing paper documents? Sometimes it’s just because that’s what we’ve always done and let’s face it change can be difficult at first. Paper alone is cheap. But when you start paying for printers, toner, servicing and maintenance, paper starts to look more expensive. Let alone the storage cost. Paper tax records for seven years can be quite a few boxes of paper. We have embraced some paperless technology as part of a modern business practice. This includes digital signatures, digital collaboration, paperless minutes of business improvement and coaching meetings, electronic work papers and my new digital notebook which I am enjoying. We send questionnaires via email to you to gather vital information to enable us to prepare your annual financial statements. This is a PDF document. Instead of printing the questionnaires you could save the document down into a folder of your choice then edit the PDF document and return to us. How do you edit a PDF document you ask? Once you have opened the document the Adobe online editor lets you do some things for free. The online editor works in any web browser and lets you add text, sticky notes and highlights. Click on the fill & sign button to the right of the document, then in the top toolbar click Iab text button. You can add text directly on the PDF document. Have a try next time you have a PDF document open. Xero and Farm Focus users can attach invoices directly to the transaction loaded into Xero. Then if you are looking at the rates expense in the profit and loss account or farm working account, you can drill down into the rates code and see the transactions. Then attached to each transaction is the rates invoice if you use this great functionality. All invoices can now be stored in the cloud. So why paperless? Productivity - electronic documents are instantly and simultaneously available to everyone who needs them. Reduce waiting times with less risk of loss or damage. Cost savings - you will save money on printing, postage and associated costs. You could pay less rent because you won’t need all that space for your files. Security - electronic documents are more secure than printed ones. Digital records can be password protected and rendered unreadable through encryption. Printed documents are only as secure as their proximity to a copy machine. Reduced Clutter - paperwork on desks and shelves are not only untidy it’s inefficient too. The organisation of digital files is simpler and your office will look much neater. That will help you clear your mind to focus on your business. Environmentally friendly - less printing means fewer trees cut down for pulp and less energy used to make and transport paper. Disaster recovery - if there is a fire or flood, recovery from the backup is much easier with digital storage them with paper. There are great help articles available in Xero or Farm Focus if you are not attaching invoices to payments already. To find out how click on the links below: If you would like to explore ways you can go paperless we can help.
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