Congratulations, you’ve finally got your business up and running! The next phase now is to set financial goals for your business so it’s successful. It’s not enough for you just to rely on savings or your start up funds. In a similar way to devising a business plan after your initial idea, setting financial goals is also vital in order for the survival of your business growth. In this article, I’ll help you determine your own financial goals and what should be included to achieve your financial targets.
Table of contents
1. What is a financial business goal?
First off, let’s clarify what exactly is a financial business goal. Your business’ finances are the metrics that can define how your business grows over time. For any business to be sustainable, it will need to have a continual profit margin increase. This can be tricky to achieve at the beginning of a new business as cash flow can fluctuate hugely. Therefore, you should decide on financial goals that prioritise the way in which you both spend and save money for your business. However, it’s important you make them measurable and achievable, and an example of how to do this is by using SMART targets. SMART is defined by Specific, Measurable, Achievable, Realistic and Time-sensitive, and can help to refine your objectives.
2. Why you need to set financial goals
Ultimately, by setting financial goals for your business, you’ll have clear objectives of where your end goal is and how you need to achieve it. This will keep you focused on the end prize and right on track with developing good money habits as your business venture grows. Without setting these targets, it could land you with poor money management skills and a failure in business opportunities.
Ask yourself, ‘what is it you want to achieve for your company’s finances?’ As every business is different, the financial goals you create should be specific to your own company.
Other questions to ask are:
- What exactly do you want to achieve?
- How long will it take you?
- How can you go about achieving them?
Once you’ve outlined your financial objectives, you’ll be able to monitor your success and prioritise what you need to focus on.
So, get your pen and paper at the ready.
3. How to set financial goals
3.1 Be clear and realistic
We’re all guilty of pipe-dreams; after all, what’s the point if we don’t have dreams? However, when it comes to financial matters, it’s time to get real. Make your goals realistic, otherwise how are you going to achieve them? Work out what you need to do to make your business get to where you want it to be in the future. For example, to do have a plan to increase sales or decrease expenditure, or both?
3.2 Have a deadline
If you have a vague date of when your financial goals are going to be completed by, then it’s very unlikely you’ll achieve them. While it doesn’t necessarily have to be a specific date as such, you should at least include a time frame – and adhere to this. In the same way as you have to stick to a budget, you also need to follow your goals right to the end.
3.3 Break down your expenses
Any self-employed business owner should know their business expenses inside out. If you don’t, now’s the time to ensure you have a financial overview of your business. Keeping track of your business expenses will help you know where all your precious earnings are going and enable you to plan for the future. Once this is done, you can prioritise where your business growth is going and set targets accordingly.
3.4 Organise your goals
You’ll find that some of your goals will be easier to achieve than others. Therefore, it’s a good idea to organise them from the beginning. You can do this by differentiating long and short term goals, and then splitting these up into specific areas of your business. For example, sales, marketing or manufacturing. Be aware that long term goals will take more strategy whereas short term goals will need action almost immediately.
4. What to include when setting your financial goals
4.1 Include an emergency fund
Not having extra capital for self-employed businesses can be a huge obstacle in order to survive the first few years of a new business. This is especially true as difficult financial periods change constantly. Therefore, incorporating an emergency fund into setting your financial goals so you can stay afloat is vital to keep your business up and running, you’re hit by an unexpected tax bill or need to invest further cash into the business.
4.2 Manage cash flow
For many businesses, there’s often a gap between the completion of a job and getting paid for it. In these circumstances, monitoring your cash flow forecast is essential in order to see the exact amount of money you have coming in and going out of your business account. With this in mind, include a budget that displays your monthly averages to prevent any cash flow surprises such as not being able to pay your bills.
4.3 Know your costs
Financial planning for businesses should always include both your increased and decreased costs. Are there ways to lower operating costs? Are your operating costs larger than your revenue? These questions, and numbers, should be carefully planned out when setting your financial targets. Similarly, review expenses and see if you can save money elsewhere; for example, in rent or other overheads.
4.4 Know your customers
Including your customers’ spending habits for your product or service is key to understanding how your business model is working, and is part of the basics of business finance. This should be linked to your marketing strategy in terms of specifically setting out who your customer base is and adapting it accordingly. Initially, this can be tricky to get right, but once you know your customers, then the chances are your marketing promotions will help you increase sales.
The last word on setting financial goals for your business
One of the most important aspects to setting out your financial goals is to stick with them. It’s no good spending time creating goals only to ignore them! Plan carefully, and make sure your financial goals are not generic, but rather, they are there to reach specific targets. Finally, remember to adjust them if necessary, which can often happen at the early stages of any business, and you’ll soon achieve your financial goals for business growth and success.