According to many economists, the recent global financial crisis is over and the economy is in recovery. However, organizations are still adjusting to the fallout of the recession.
During a recent session with a client, I was reminded of the long-term impact of the recession on today’s fiscal decisions.
My client was an emerging leader, who was very frustrated with the current fiscal state of her organization. Her budget was recently reduced to cover an organizational short fall. While she understood the need for fiscal reductions, she was not prepared and wasn’t sure how she would support her team until the end of the fiscal year.
Over the next 30 minutes, we brain stormed solutions to her current challenge. As we prepared to wrap up our session, I asked her to reflect on the following question:
“Based on the current financial state of the organization, what steps could she take today to prepare for next year?”
My client let out a deep sigh and said, “Kim I don’t know. I wish I had a crystal ball!”
Sometimes a leader must be a ruler who makes the final judgement. Sometimes a leader needs to keep the team calm. And sometimes, a leader must be the one to solve arguments and disputes.
My mentor John Maxwell said, “Leaders are big picture thinkers. Leaders see before others see. Leaders see more than others see.” For an effective leader, one of the most important jobs of all is to see the future. In other words, a leader must be able to anticipate what is just around the corner and predict what challenges and changes will face their organization.
This is crucial, because it is what will allow leaders to create a more resilient business and to weather any storm. Moreover, it is what will allow them to take advantage of changes in the market and truly flourish rather than just survive.
So how do you do it? One approach is to use financial modelling. This is an accounting strategy that can be useful in all manner of leadership roles – including leading your household!
The idea is essentially that you’re going to look at the situation your organization is in financially and then try to predict how that might change. To do this, you will look at your overheads and your income. How many customers or clients do you have? How much of your sales is profit? What else are you spending money on? How long until you pay off your loans?
This allows you to make a graph – your financial model – and you can use that to plot future predictions for your earnings. This may be a sharp incline, or it might be a steady plateau. It may be that it takes a while for you to break even.
Either way, this information allows you to budget for the future, knowing how much spare cash you’ll have at any given time. Moreover, it lets you create what-if scenarios – seeing how your organization would survive an increase in rent for example. If the answer is ‘it wouldn’t’, then you need to challenge your assumptions or develop contingency plans!
Leaders face different challenges every day.
As you prepare to meet the demands of leadership, find resources to help you make the best decisions for your organization.
Do you have a crystal ball?
Dr. Kim Moore, guiding YOU to lead with confidence!
Dr. Kim Moore
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