Revenue, costs and profit and loss in making business decisions

The need for financial information to make decisions

Decision making is vital to the success of any business. The quality of the decisions made by a business can determine whether a business succeeds or fails. Those making the decisions will rely on financial information to guide them. This financial information will include revenue, costs and profit and loss data.

Some decisions are more significant than others, and can directly impact on a business. These decisions may require a significant investment, and so the business will carry out a lot of market research and analysis before a decision is made.

For example, before deciding whether to develop a new product a business will undertake market research to find out what customers want, how often they would buy, and what they would be prepared to pay. Although this research will cost the business money, it can help them to calculate which decisions will provide the greatest financial reward for the business.

Other decisions may be smaller in scale, but can still have a financial impact on a business. For example, deciding whether or not to take on new staff will affect the costs that a business incurs.

Using financial information to make decisions

Decisions that use revenue informationDecisions that use cost informationDecisions that use profit/loss information
What price to charge to maximise revenueWhether to take on new staffWhether to invest in new equipment or buildings
Which products need to be withdrawnWhether to move to larger premisesWhether to develop new products or offer additional services
Where to focus any marketing activityWhich suppliers to use to obtain the best value for moneyHow much can be taken out of the business by the owners or shareholders