Financial goals and objective setting can be challenging, especially if you don’t consider numbers to be your strong suit. Surprisingly the basis of financial goal setting, particularly in small business, has little to do with numbers and much more to do with your personal goals.
The first question is to review why you chose to start your business in the first place. Was it a lifestyle choice to increase your flexibility, or did you want to be your own boss, choose your hours and increase your income in the process? What if the original plan was to turn an idea into a start-up, grow it into a thriving business before selling it and moving on and yet five years later you are still slugging away? This is the perfect example of why financial goals are not always number driven and should be articulated and regularly reviewed, in case you’ve lost your way or changed course.
“If what you are doing is not moving you towards your goals, then it’s moving you away from your goals.” – Brian Tracy
Besides the why, the most fundamental financial goal starts with profitability, obviously. No one goes into business without an expectation that their revenue will exceed expenses and create a profit. If you don’t want to be profitable and reap the rewards of your hard work you might as well work for someone else and be guaranteed a wage. To be profitable not only means the ability to pay a salary for owner and staff, but also, create returns for any shareholders or investors as per any contractual agreements, and savings for future expansion or capital purchases.
Setting a profit margin goal against industry benchmark or expectation is also a useful measure of success and potentially market share as well. If the industry average is 5-7% profit margin and you are achieving 8-10% for example, this would identify exceptional business practices, increased market share and ultimately a greater value if and when it comes time to selling the company. Alternatively, if you are under performing it would suggest you need to review processes and reconsider whether staying in business is a worthwhile option.
Cash flow goals are essential. As we’ve talked about previously, there is more to staying in business than just earning a profit. If your cash (both inward and outward) is out of sync, you won’t remain in business very long, regardless of your profit margins or market share.
Why are goals so important? Without knowing exactly what you are aiming for, you are unable to accurately measure your success or be able to change tack when you steer off course. Almost as bad as setting zero goals, is the irreparable damage to your business and yourself, of setting unrealistic and unattainable goals. You should never set goals or accept challenges that are beyond your potential, which will cause your health to suffer or create relationship difficulties and breakdowns. No business is worth any of these sacrifices.
“People with goals succeed because they know where they’re going.” – Earl Nightingale