Every business needs a roadmap.
The majority of successful businesses establish business financial goals and arrange
their strategy to achieve them. Some businesses get started with little
strategy and hope to stay above water, not realizing that a commitment to
establishing and following through on stated business financial goals have long-term
benefits. Understand the importance of business goals for your organization and
what goals can be important to implement.
Why Are Business Financial Goals Necessary?
Your business seems to be
running smoothly. Why add “business goals”? Why now? Three reasons below should
make you rethink your strategy.
1. Continual Improvement.
Your business cannot afford to
rest in this higher competitive environment. Setting goals allows organizations
to identify their benchmarks of success and review how they stand against them
from year one through to year five and beyond.
2. Better Decision-Making
Ability.
Eyes need to stay on the ball
and with defined goals, individuals throughout the organization get a clear
picture of how decisions relate to the strategic goals. This understanding
furthers the importance of key decisions and pushes people to make the most
effective use of their allocated resources.
3. Alignment of Your Team.
Teams that understand the end
goal are more effective at achieving the objective. Everyone can understand the
importance of their contribution and how it impacts the organization’s success.
It alos stands to offer rationale for hiring decisions, acquisitions, sales
programs and financially-driven moves from the organization. There is less
perceived bias and more objectivity attributed to decisions that align with
clearly stated goals.
What Financial Goals Are Best for Small Businesses?
Small businesses work with less
resources than the big boys and must be able to sustain themselves and earn a
profit. Make sure that goals developed are SMART, or specific, measurable,
attainable, relevant and time-based. In that vein, consider these fundamentals.
1. Earn a Profit.
This is the most basic goal of
any enterprise. Run the calculations of revenue versus operating expenses and
see if your organization’s profitability is enough to sustain stakeholders or
owners and allow the organization to grow. Business revenue includes income
from sales and rent on business property. Operating expenses are items such as
payroll, materials, rent, advertising, licenses and taxes.
2. Determine Cash Flow Needs.
Cash flow involves your
organizations ability to have enough operating capital to take care of basic
expenses. Seasonal fluctuations and payment lags can interfere with a
consistent cash flow and business often turn to a line of credit to make up for
the gap. Organizations can establish cash flow goals to create limits for
off-season operations financing and time frames for paying outstanding bills.
This will enable business to reduce their dependence on credit and avoid
ill-timed purchases.
3. Set a Profit Margin
Financial Goal.
The percentage of total revenue
in excess of operating expenses is your profit margin. Profit margin standards
vary from one industry to the next. A restaurant’s profit margin may be between
2 to 5 percent. Look at your industry’s average profit margin and compare it to
that of your business.
4. Plan for Future Growth or an
Exit Strategy.
How will your organization use
its revenue to take advantage of opportunities? Some plan to own property and
organizations currently renting a space may have the opportunity to purchase in
the future. Over the long haul, it may be a golden opportunity. Decisions on
down payment and ROI should be considered when taking on more responsibilities
or opening other offices. For other organizations, such as those of serial
entrepreneurs, eventually selling their product or company at some time down
the line for a considerable profit is their end goal. Establish a feasible
financial goal to enable your next strategic move.
“You have to know what you’re
going for, and do it with your eyes wide open,” said Francisco Dao, founder and
president of The Killer Pitch, and former Inc. business coach and columnist.
“Look at yourself in the mirror and ask yourself what it’s going to take to
achieve your goals.” This examination is necessary to identify what you want to
achieve within your business. Each of your goals will be broken into smaller
steps as part of your action plan. Goals won’t ensure success but every great
leader had a plan. Abraham Lincoln said, “If I had eight hours to chop down a
tree, I’d spend six hours sharpening my ax. Do your homework and make the most
of each strike.
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