Not even the smallest of small businesses can thrive without setting realistic financial goals. A set of financial goals is like a company’s road map, always providing a frame of reference for where the business is and appears to be going. It enables business owners to put each day’s actions into context and make decisions in accordance with a broad vision. If you have decided to start a small business, there is no better time than now to begin the financial goal setting process. Sadly, the apparent difficulty of small business accounting scares many entrepreneurs away from doing a real, thorough job of this.
Following are some practical steps that will demystify the process.
Allot Regular Time to Set & Adjust Your Goals
Despite the obvious importance of financial goal setting to small business success, it’s easy to neglect in favor of other, seemingly more “urgent” tasks. Getting a new product out the door, signing a big client or eliminating corporate waste can quickly take precedence over far-off financial goals. Therefore, it is critical that business owners allot specific, regular times to both set new financial goals and review progress on existing ones. Like any other business task, financial goal setting is unlikely to get done without a firm date for completion. Nor does this need to be an especially complicated system. Something as simple as agreeing to review company finances each Monday for two hours might be all your small business needs to get and stay on track.
Set S.M.A.R.T Goals
That said, it is not enough to merely spend regular time sitting around and theorizing about financial goals. To truly get the most out of the exercise, strive to set S.M.A.R.T goals instead. As Goal-Setting-Guide.com explains, S.M.A.R.T is an acronym for “specific, measurable, attainable, realistic, and timely.” Using this criteria, it soon becomes clear that vague goals like “making a lot of money” are totally insufficient. Same goes for far-off goals like “start taking out dividends by next summer.” These types of goals are unhelpful because they express what you hope will occur without specifying in any detail how it will happen.
A S.M.A.R.T goal, in practice, might be something like “double our sales by the start of the third quarter using weekly split-testing of ad copy and improvement of our follow-up sequence.”
Consult Your Numbers
S.M.A.R.T goal setting demands that your actual numbers (rather than future, hoped-for “dream” scenarios) be used as the starting point. You must accept the current reality of your small business as portrayed by your cash flow, the income statement and balance sheet. If you are new to the business world (or have been neglecting company finances up until now), these documents may be unfamiliar. Nevertheless, they are critically important and foundational to small business goal setting. MoneyInstructor.com offers a sample income statement, while AccountingCoach.com provides a sample balance sheet.
Compare Yourself Financially to Competitors
While it may be impossible to know exactly how competitors are doing financially, it is generally common knowledge what the profit margins, labor and production costs in most businesses are. This, too, should be incorporated into the goal setting process. Do not look at your company as though it exists in a vacuum. It can be disheartening to learn that competitors are currently more profitable, but it is also an opportunity to reflect on why and how they got to that point – and how you can, too.
Create Action Plans
In accordance with the S.M.A.R.T goal philosophy, it is necessary to create specific, detailed action plans for how all goals will be reached. Once a goal has been set, move on immediately to delineating the necessary tasks. If new advertising copy needs to be written, make whomever is responsible aware of this and provide a deadline for completion. If customer support is a bottleneck, decide what needs to change, who will carry out the bulk of the work and when it needs to be done. Never be content to just set the goal. Always follow through.
Once the action plan is in place, document all progress made in implementing it. Task spreadsheets often work well in this regard. Simply create a shared spreadsheet in Google Docs or a similar service with the following headers:
- Date Posted
- Date Due
Insist that anyone with a role to play in carrying out company financial plans use this spreadsheet to record what they are doing. This way, everyone can get a read on progress by looking in one set place.
Don’t Get Comfortable
Finally, there is much to be said for not growing complacent about financial goal setting. There is a tendency in new businesses to get comfortable with the status quo once a certain level of financial success has been achieved. Perhaps the company is turning a healthy profit, paying out handsome salaries to the owners and showing no signs of weakness. Be that as it may, no business owner can take up an attitude of complacency for long. The financial goals must always be on where the company currently is, where the owners want it to go, and what actions are needed to get there.
About the Author: Robert Steere is a staff writer at Business Owner’s Toolkit. Business Owner’s Toolkit provides information on small business accounting. They also provide useful tools for small business owners such as a sample balance sheet.