Last editedJun 20222 min read
Every good business needs to know where it’s going. But while it’s vital to understand where you want to be as a brand, having firm financial goals in place is equally important. Without finances to fuel the engine, the wheels of business simply won’t turn.
If you’re not an accountant, setting financial goals for a business doesn’t come naturally to many business owners, particularly those helming first-time small businesses. But choosing to ignore these goals puts your business at a severe disadvantage, while getting it right can mean the difference between expansion and collapse.
What is a financial goal?
A goal is a target to aim for – an achievable endpoint for one stage of your business that must be reached before you start the next. The length and size of your financial goals depend on the size and sector of your business, but most financial goals are annual. The idea is to have something tangible to work towards – a nice round figure to achieve by the end of the fiscal year.
Financial goals can be a powerful and flexible tool for your business, giving you a measuring stick against which to assess your performance. They also help to attract investors by revealing strong business acumen. Those with strong financial goals are more likely to achieve overall business aspirations as they set a bar. Without that bar, it can be difficult to tell when your business is underperforming.
What are your financial goals?
Your goals are always going to be specific to your business but are generally grouped into one of three overall goals:
This is a ‘the sky’s the limit’ kind of goal that works for really ambitious startups or those with a large amount of investment and seed capital. The problem with a blue sky target, however, is that it is incredibly unstable and could lead to burnout.
This is a target that you feel comfortable reaching but that falls short of comparable financial targets for similar businesses. Setting lower financial goals might be a valid option for businesses opening in tough economic times or for those wishing to err on the side of caution. A lowball target is stable but doesn’t inspire growth or confidence from investors.
This is a ‘middle of the road’ target that aligns with the targets of similar businesses and relies on historic data from past experience. This is the most comfortable goal for most small businesses and can also be bolstered by a ‘stretch’ goal that leaves room for improvement.
How to set financial goals for a business
Setting financial goals, whether blue sky, lowball or realistic, is all about figuring out the difference between what you want your business to achieve and what you believe it can realistically achieve. It’s all relative. For example, setting blue sky financial goals when you are a sole operator with a local and very niche product or service is only going to lead to disappointment.
Conversely, setting low expectations when you have just launched an exciting and relevant new product is going to make customers and investors think twice before giving you the time of day. Finding that sweet spot is only possible if you have a deep understanding of your industry, your own aspirations and the legitimate potential of your business.
Once you’ve reached your first major financial goal, then it’s time to pop the champagne and start reaching for the stars.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with.
For small business owners, it offers a way for customers and clients to pay directly via their bank accounts and it syncs perfectly with leading accountancy software platforms like Xero and QuickBooks. This means it’s much easier to monitor financial results and create and facilitate financial goals.