Financial Goals for Small Businesses and How to Achieve Them
June 13th at 3:32am Published by sharpshooteradmin
Many small business owners start their organizations with numerous aims and objectives in mind. Not only do they want to help their startup idea towards growth, but they also try their best towards ensuring that the business is kept financial stable. Financial stability is one of the most underrated concepts of running a business. We talk a lot about operational efficiency and other metrics of running a business, but we fail to pinpoint financial stability as one of the major reasons that should be kept into perspective.
If you’re running your business to make money, you would want your goals and objectives to reflect that. Your financial goals should guide your business towards success, rather than proving to be a roadblock. You should set realistic financial goals because the unrealistic ones will prove disastrous for your company.
Setting financial goals for your business can be a tricky process, especially if you don’t follow the right tactics. Before we list down some of the financial objectives you should set for yourself, we’ll discuss a simple way to come up with your goals.
The SMART Method is one of the most commonly used techniques for goal-setting. This method dictates that all goals of an organization should be:
- Specific: You should be specific as to what exactly you are looking to achieve through that specific goal. The more specific you are with your description, the better will be the chances of you achieving the end goal. Let’s just say that you want to achieve growth. You can’t jot down ‘growth’ as a goal that you want to achieve over the next couple of years. Neither is this goal well defined and nor is it specific as to where you want to experience the growth. To make this goal even more specific you can jot down a goal such as ‘growth in revenue.’ This is more specific and doable now for your team members as well. To make your goals specific, you have to answer questions related to what you want to achieve through that goal, the end vision would help clarify your objectives.
- Measurable: The goals you set for your business should be measurable and easy to quantify. By measurable goals, we mean that you should best break down your goals into different milestones so that the progress is easy for you to measure periodically. For instance, you want to increase your savings by $50,000 in the next 5 years. Now, this goal can be made measurable by distributing the total increase into equal amounts of 5. You will now know how much you have to save over a year. Through these figures, you can track your success and identify where there is room for improvement. You need to identify the room for improvement and work on it for the best results.
- Attainable: The goal that you set for your business should be attainable. This is a necessity because you do not want to set goals that your business wouldn’t be able to attain in the long run. You should look to set goals that you can realistically achieve and have the capabilities for. If you don’t have the time and effort for a goal, you surely won’t be able to achieve it. When it comes to businesses, you have to be wary of the goals that you set. Setting an objective that is out of your reach can lead to discrepancies down the line. You would be evaluating your employees based on the performance they have done to attain that goal. And if the goal isn’t attained, you will give the workers quite some stick. Individuals can shoot for the stars because they don’t have multiple factors involved, but as an entrepreneur, you have to take numerous factors such as attainability and employee growth in mind. The growth of your employees should be based on the goals they achieve, so you shouldn’t just set goals that are too difficult to achieve.
- Relevant: The goal you choose should be relevant to the objectives you have in mind right now. Business goal setting can get messy when you set completely irrelevant goals. For instance, as a small scale startup, your goals should be focused on survival and growth. At this stage, if you were to set a goal for starting international operations in six months, then that wouldn’t be considered relevant. Time is an important factor here, as your goals should be relevant in consideration to the time you set them. Every goal has a specific time that it should be set at. If you have a farsighted objective, make sure that you wait for the right time to make it happen. Discuss the objectives with your team before setting the goal, as we are sure that they will give you good advice.
- Time-Bound: Time is at times even more important than money for a business. Make sure that your goals are timely and are made to meet the deadlines and the time limits that you have in mind. Time-specific goals give you an idea of how long do you have on your hands to actualize your goals. We as humans tend to work more actively when we are nearing deadlines. Hence, you can also benefit from setting deadlines and realizing how you should go about meeting them. The right deadline can easily be met through the right methods. Not adding a time limit to your goal would mean that you aren’t serious about meeting it. You have to make sure that your staff is on track and they don’t neglect the importance of meeting your goal. Additionally, setting a time limit is necessary for measuring the progress you are making towards achieving a goal.
With this method of goal setting, you would surely be on the way towards setting the best financial goals for yourself.
Some Financial Goals for Startups
Knowing how you might be looking for inspiration when it comes to setting the financial goals for your startup, here we mention some financial goals that you can set for your business. Go through the goals below and take inspiration from them:
Increase Your Revenue
When you first start your business, your success is all about the priorities you set. If your priorities are right you can end up getting to the objectives you have in mind. When you first start your business, your biggest objective should be to increase your revenue and experience growth over the passage. Increases revenue is one of the most obvious goals for businesses. The number of sales you make depends on the number of units you sell, while the revenue you make depends on the amount you make through sales. For instance, if you sell 200 units of your product for $2,000, you will have sold 200 units in sales and generated $2,000 in revenue. You can also increase your revenue without increasing your sales, by increasing the price of the units you are selling.
Once you start your business, the revenue you make is one of the most important considerations you should have in mind. To set growth in revenue as a goal, you should forecast your sales and look for ways that you can achieve the growth. If you want to sell more goods in a specific period, you should forecast for the increase beforehand and work towards the growth with proper budgeting. Increase your lead generation methods, and also keep taking feedback from your employees, so that you know what can be done for increased revenue.
Decrease Your Costs
If you have pertinent experience and knowledge about financial info, you would know that the net profit you make at the end of a term is the primary number for gauging the success of your business. If you want to see how your business is performing, you should keep an eye on the profit.
Now, there are two ways through which you can increase your profits; firstly by increasing your revenue, which we have already talked about above and secondly by decreasing your costs. Both of these methods have their perks and efforts required for success.
When you look to decrease your costs, you look for sustainable methods that can be implemented in the long run. Every business wants to follow cost reduction methods that allow them to make profits without incurring too many overheads.
As a business owner, you should always have an eye on what you can do to reduce your costs. The costs you incur should be reduced so that your profits are consistently on the higher side.
If you cannot find the right way to decrease costs, you should start with decreasing your interest payments, negotiating better contracts for employees and managing waste properly. These are all heads where you can work to decrease your costs by a significant margin. Once you work on costs and remain frugal with your expenses you would be a significant increase in your profitability.
Improve Your Margins
As a business owner, you should have your eyes set on all aspects of running your business. Since profitability is one of the major financial aspects, you should make sure that you focus on all parts of it. The margin is one ratio that most entrepreneurs follow to measure the profitability of your business. For calculating your margin you need to find the percentage of your net profits in comparison to the sales you make. Your total revenue should be divided by the total net profit and multiplied by 100. The answer to this formula would tell you how much profit can generate through your revenue. Every industry has its norms when it comes to profit generation, which is why you should check the standards in your industry before considering the margin for future growth. The margin will identify all possible growth opportunities in your business and would allow you to see how important it is for you to decrease expenses and costs of production. If your margin is less than 20 percent, then you need to severely take action on your costs and the expenses that are subtracted from your gross profit.
Better Cash-Flow Management
The cash inside your business is the oil that keeps the engine of your business running. You cannot seriously think of running your business well without taking into consideration the needs of your cash flow.
You should have goals when it comes to your cash flow. By goals we mean you should quantify just how much cash you should have with you in the bank. This is perhaps one of the toughest objectives to follow since most businesses do not keep an eye on the cash balance. Small business entrepreneurs do not recognize the importance of liquidity management, which is why they consider investing in assets the same as holding cash.
If you do encounter cash-flow troubles, you should take evasive action immediately and get small business funding from a private funder. The small business funding would help you inject some life into your business, as you look to increase your cash reserves in the long run.
Additionally, when it comes to predicting the cash flow requirements of your business, you should make sure that you consider the liquidity of your business as well. Just like the profitability of your business, liquidity is something that you should have in mind during the long run. The liquidity of your business determines the ability it has to pay off its debt in the long run. Cash flow planning also involves having enough cash in the bank for paying your bills off at the end of the month.
Tracking Your Goals
Having discussed the tips for setting financial goals, and a few goals that you can set for your business, we now move on to discuss how you should track your goals. Setting your financial goals is perhaps the first step towards financial stability. Once you have set your goals you need to move forward and head towards actualizing or achieving those goals. Now, that is the hard part and requires your full focus and attention. To achieve your financial goals, you should make sure that you keep tracking them and take the correct measures for amending all irregularities.
If you do fall short of any milestone in the progress towards achieving financial stability, you should address it with the attention it requires, so that it doesn’t happen again.
The tracking process is extremely important and will prepare your business with the right objectives to follow while moving forward.
If Your Actions Are Lagging Behind
Once you start measuring the success of your goals, you will often encounter instances where the progress is lagging. For instance, if your financial goal is to see an increase of 10 percent in your annual revenue, you would want this increase to be consistent across all 12 months of the year. Once you have made a 10 percent increase in all 12 months, you can make a 10 percent increase in the revenue for the whole year. However, if you measure your progress and find out that you’ve only been making a 5 percent increase for the first 6 months, then you would have to take immediate action.
You could take the following actions:
Make the Goals More Measurable
Your lack of progress towards the goal has suddenly dawned upon you because you hadn’t been measuring progress during the early parts. You must keep a stringent eye on your progress and keep managing it without any irregularities.
Now, since you are already behind your goal, you should make sure that you remain specific for the rest of the period. Make sure that you monitor your revenue weekly and study the charts to see how you’re doing in comparison to previous periods. Specific team goals should be set to motivate employees towards aggressive development.
Focus on the Reasons for Failure
If you are lagging behind your goals, then you need to sit down and find out the possible reasons for your failure to keep up with the goals you had set. As we had mentioned above, setting goals is the easy part, and the hard part follows when you have to adhere to those parts. You should make sure that you focus on the reason behind your failure so that you can work on it during the rest of the period. If you believe that your sales team has been slacking off, then you need to tighten their screws for future success.
Be Open with Employees
We believe that your employees should be considered as an integral part of the goal-setting process. You need to keep them with you throughout the whole process so that when you proceed forward, you can both give each other the due guidance required for success. If you have not been including your employees in the decision-making process, then now is the time to give them the charge that they so desperately need. Ask your employees what could be done to improve results and where the current shortcomings lie. Your employees will certainly guide you well and will answer your queries well.
Things to Consider When You Are Ahead of Your Goals
Fortunately, there are also going to be times when you would find yourself to be ahead of your goals. Like we just helped you decide what to do when you’re lagging, we also tell you what you can do when you are ahead of your goals. At the end of the day, “you gotta make more hay when the sun is up shining.”
Follow the Best Practices
The success you are currently making in achieving your goals could be the doing of some practices implemented across the company. Now is the best time to identify these practices and follow them for the same results to continue coming. If you have been micromanaging expenses, then keep doing that, if you have had a stringent eye on your sales team, then keep doing that. If you have increased the bonuses for your sales team, then keep doing that as well. Whatever it is that you’re doing should be continued to get the best results for your team.
Invest in the Future
Don’t forget the future when the sun is shining the brightest upon you. Once you feel that manufacturing processes are fine-tuned and that the revenues are coming by, then you should look towards investing in the future. You can invest in the future by looking at ways to invest in company-wide growth for the future. Think of ways to start a new manufacturing plant, or better yet invest the money back into the business for future growth. No business was ever able to expand without keeping an eye on future growth.
Don’t Slack Off
Some entrepreneurs often slack off when they find themselves on track towards achieving the goals they have in mind. This is a flawed perception and would eventually stop you from meeting the goals. If you want to achieve your goals, you should keep the momentum forward, rather than stopping it.
Treat Your Employees Well
Your employees need to be treated for the efforts they have put in during this period. You can take them to a team dinner or can give them separate bonuses. Think the ideas out with your management, but do remember to treat them for the hard work they have put in with you. Once you treat your employees well, they will treat you well.
With the tips above, you can set the right objectives for yourself and can achieve them going forward.