3 min read
Every penny counts for small businesses. It’s not enough to bring in enough revenue to fund daily operations – you also need to think about future growth.
Setting financial goals helps you keep an eye on the big picture, and devise the steps needed to get there. Financial goals for a business could involve saving enough to purchase new machinery or levelling up to a new satellite office. Whatever they mean for you, here’s how to get started.
Why are financial goals for a business important?
Financial goal setting forms a fundamental component of any small business’s strategy. Whether you focus on numeric benchmarks or tangible purchase of property, these goals serve as a roadmap to help keep your business on track for growth.
By setting targets for revenue, cash flow, and other financial metrics, businesses can ensure that they’re following a successful strategy and adjust as needed.
Examples of financial goals for a business
To get started with setting more effective goals, it’s helpful to determine which areas you need to focus on. Here are a few typical examples of financial goals for a business:
The core goal of any small business is to improve profitability and earn more revenue. Improving profitability means taking in more revenue than you spend on business expenses. Revenue can come in from multiple sources, whether it’s interest earned from investments or income earned from sales.
Another way to look at profit when setting financial goals is with your business’s profit margin. This refers to the percentage of revenue exceeding operating expenses. A business might set the goal of exceeding the industry standard for profit margins. For example, imagine that the average profit margin for your industry falls between 4% and 7%. Your business’s profit margin is currently 4.5%, so you might set a goal of increasing it to the higher end of the industry standard.
Manage cash flow
Businesses must maintain sufficient cash flow to pay basic expenses, but cash inflows can fluctuate due to seasonal trends or delays in payment. Financial goals for a business will often focus on ways to improve cash flow, such as managing payments more effectively.
In addition to the examples above, financial goals can be smaller and more specific, such as saving money to purchase equipment that will improve operations. This could be purchasing a retail space, investing in product development, or subscribing to automated accounting software. Your business might also wish to cut operational costs or pay off an outstanding debt to better your financial situation.
Goal setting strategies for businesses
Once you have a few potential goals in mind, it’s time to apply some tried-and-true strategies. One popular option is to set SMART goals. SMART is an acronym that stands for “specific, measurable, attainable, realistic, and timely.” In short, you can apply these criteria to your financial goal to determine if it’s worth pursuing.
For example, you might want to earn more money. However, “earn more money” doesn’t meet the SMART goal setting criteria because it’s not specific. You can improve this goal by stating how your business will earn more money within a certain timeframe. For example, you could change “earn more money” to “double sales within the next quarter by rolling out a new social media marketing campaign.” This gives you a clear, measurable goal to pursue.
Whether you use SMART goal setting or not, it’s important to base any financial goals on your current figures. Sit down to analyze your business’s financial statements including the cash flow statement, income statement, and balance sheet. This will show you a clear layout of your business’s cash inflows and outflows, profit margins, and revenue.
How to monitor your progress
Smarter financial goal setting doesn’t stop once you’ve determined your targets and plan of action. It’s also important to monitor your progress along the way. Document all actions taken to implement the strategy, defining each action and its result. If you’re saving towards a specific goal, put the funds into a separate account. Choose the most relevant metrics to follow, whether it’s total revenue, profit margins, or sales per quarter. You can chart these metrics over time to see how close you’re getting to your target.
Finally, remember that no business meets every goal. Analyze the actions taken to note what worked best and tweak your strategy for a more effective outcome with future goals.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices and other payments. Make it easier to keep track of your accounts receivable by using GoCardless, either standalone or in conjunction with one of our 200+ partners, including Chargebee, Salesforce, Xero, and Zuora.