Modeling

Most small and medium-sized businesses make key decisions based on gut feeling and instinct. Major decisions are made because they seem to "make sense." While good business instinct should never be overlooked or underestimated, it should not be the foundation for critical business decisions in your company.

Major decisions should be made using sound financial processes, with as much information as possible to determine the potential outcome of the decision. A financial model is a tool that looks at the probable outcome or outcomes of a major decision. Some scenarios include:

• The decision to purchase major equipment or machinery
• The decision to employ a worker or team of worker
• The decision to rent or lease
• The decision to open a new location
• The decision to launch a new product

A sound financial model can aid nearly every decision or strategy.