How To Set Financial Goals

Very few business ventures experience success without some element of financial planning. In order to take full advantage of market opportunities and to have the resources to expand, business owners must come to terms with the discipline of setting financial goals.

Being able to set such goals is impossible without first having a clear picture of where the business currently stands. Financial benchmarks which are plucked out of the air are worse than useless, as they may lead the business into territory which is commercially unsustainable. Therefore, before doing anything else, the prudent business owner should ensure that the company’s accounts, balance sheet and cashflow budget are fully up to date and accurate. This should be the case not just for the immediate present, but for the past operations of the business as well, allowing a sensible analysis of past trends.

Any goals should be ‘SMART’, which is to say that they should be specific, measurable, action-oriented, realistic, and time specific. Specific goals are concrete, rather than abstract, while measurable goals are those which have a figure attributed to them (i.e. “make £100,000” rather than “make a significant amount of money”). Action-oriented goals are those which lay out which actions need to be taken by which people in order for them to happen, while realistic goals are those which are challenging but achievable within the timeline set out. Of course, there is nothing wrong with ambition, but consider setting out a number of ‘staged’ goals rather than setting yourself one which cannot be achieved for years to come.

Once this analytical foundation is present, financial goals should be set in parallel with the business’ strategic plan. Such goals should not simply be free-standing, but should instead facilitate the business to be able to do something better or something new. For example, a financial goal of earning an extra £100,000 per year is of much less use than a goal of earning an extra £100,000 in order to be able to invest in new stock or a significant new piece of infrastructure. Financial goals should never exist in isolation, but should be part of a wider strategy of business growth.

It is also important for a business owner not to get carried away with setting financial goals with an eye only on the balance sheet. A common mistake is to enter into an ambitious scheme of investment in order to meet future financial goals, which were not set with any consideration of the need for healthy cashflow or business resiliency. Meeting that goal of making £100,000 to invest in a significant new piece of infrastructure is of limited use if, in making that £100,000, the business has used up its reserves or ignored other potential streams of income which would have enabled it to diversify. For this reason, financial goals should be set using all of the analytical tools available to the business, and revisited frequently. Setting goals is important, but don’t become their slave!

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