Setting financial goals for your business should be easy. Earn more money than you spend. While that remains one of the most important business goals, there are a few other things to think about too. We’re going to walk you through how to create viable financial goals for your business, regardless of its size.
We’re going to walk you through how to create viable financial goals for your business, regardless of its size.
What Financial Goals Should Your Business Have?
Your business’ financial goals can be broken down into four different areas:
- Cash flow
- Specific goals
- Profit Margins
Each of these areas should have their own unique goals. Let’s jump into understanding each one some more.
Profitability – to survive, a business needs to be profitable. Unfortunately, many businesses find this hard to do initially, which is why so many new businesses disappear after one or two years. To make a profit, your business must spend less than it receives. This not only includes the cost it takes to provide your service or product, but to also pay all your business expenses. Power, rent, wages, advertising and tax liabilities all need to be paid for too. To set a goal in profitability, you will need to identify how much money you need to cover all your expenses, be able to pay the directors or shareholders and to invest in growing your business.
Cash flow – a business with a successful cash flow has enough money to cover its expenses without borrowing money. Setting a goal for your cash flow means working out your seasonal income highs and lows, keeping enough money in the bank to pay your debts and purchases when needed.
Specific Goals – a specific financial goal for your business is one which will increase the profitability and operations of your business. It may be something like buying a building instead of renting or saving for a new piece of technology. Creating a specific goal means you need to take into consideration not only the cost of the purchase or deposit, but also the long-term costs. Mortgage payments, maintenance costs and staff training also need to be identified.
Profit Margins – the profit margins of your business show what percentage of your gross income is expense based, verses profit based. To work out a profit margin goal for your business, it helps to know what the norms are for your industry. This is a good first goal to aim for, then once you have met it, increase it!
Creating Viable Financial Goals
Your financial goals need to be viable. This means they need to be realistic, achievable and measurable. In other words, they need to be SMART.
- Specific – nail it right down to be highly targeted
- Measurable – identify how you are going to know when you met it
- Achievable – you know it will be challenging, but you can meet it
- Realistic – it’s possible with the knowledge and resources you have
- Time Based – there is a set time to achieve your goal