Shweta Jhajharia, founder of The London Coaching Group, claims successful business owners could avoid taking too many risks by learning three keys things about their business.
One of the first things that would help a business understand risk is what she calls “learning the language of numbers”. This is because businesses do not speak in English; they speak in numbers, for example profit, sales, cashflow, assets, equity, return on investment, average value sale and conversion rate.
Ms Jhajharia said: “These are the words – and numbers – that a professional businessperson must understand and apply whenever they make a decision about their business. By understanding the numbers you reduce the risks associated with any decision.
“These numbers are not accountant-speak. While you need to understand your financials, the real core of the language of numbers includes non-financial numbers that are critical to every major decision in your business.”
The second key point was making sure a business knew what its metrics were. This means being able to measure conversion rates from various marketing strategies, average response rate of campaigns and return on marketing investment.
In sales, a business should be able to determine the average pound value of their transactions each month, the number of transactions each month and the activity each sales person undertakes to meet targets.
In team management, metrics should include a ratio of interview to hire, staff turnover rate and justification of an employee’s cost to the business.
The third key element a business needs in order to make calculated risks is learning to define better business objectives.
Ms Jhajharia said all goals should be ‘Smart’, that is – specific, measurable, achievable, results-oriented and time-bound.
Specific means you have to spell out exactly what you want to achieve and how you want to achieve it. Measurable means having distinct criteria that allow you to measure your progress and determine the success of it.
Achievable means there are achievable goals, results-oriented means the goals must be related to the success of the business, and time-bound means having a goal with a proper timeline, without which it is just a dream.
Ms Jhajharia said: “Successful business owners don’t leave their business to chance. They don’t take risks. They follow fundamental principles that allow them to calculate their probability of success, and choose the ‘risk’ that is, in fact, most likely to succeed.
“Without learning to calculate risks in this way, you’re just making guesses and hoping for the best. Instead, if you clarify your objectives and then work towards those through the language of numbers on key metrics, you will then stop relying on chance, and instead take calculated risks that have an increased probability of success.
Adviser view
Chris Budd of Ovation Finance in Bristol said: “Businesses do need to quantify success, but sometimes what is needed is some gentle coaching of both staff and clients rather than everything being numbers-based.”
