Setting financial goals gives you a clear focus on running your business without blowing your budget. This 2022, establish yourself as a financially savvy small business owner by learning how to set financial goals for a business.
Why do you need to set business financial goals?
To grow your business, you need to visualize what and where you want it to be.
Without this vision, you’ll be running your business blindly. Your daily activities will be more about survival than growth. If you don’t have any goals or priorities, breaking even will be enough. There’s a high chance that you’ll rely more on sheer luck instead of hard work to attain success.
On the contrary, having clear goals will push you to work harder on your business growth. You’ll understand that even your little actions have a huge impact on your long-term success.
In short, setting financial priorities guides you in taking the right steps in business.
But how do you do this? In the next section, we discuss the basic steps on how you can set realistic financial goals.
How to set financial goals for a business
Here are the steps to set your business financial goals. Note that these steps only serve as your guide. You can follow the steps as they are or modify them as you see fit.
Review and update your business financial goals
Setting financial priorities starts with goal setting. At the beginning of the calendar year — or fiscal year if this is more ideal — make sure to set aside some time to review and update your goals.
Check if you’ve achieved your targets from the previous year. This will help you determine if the goals you will set for the upcoming year are realistic or not.
If it’s your first time setting financial goals, take this year as the opportunity to formulate them to improve your business health.
Identify your expenses
The next step is to know your business costs.
When you know the costs of running your business, you’ll get the upper hand in managing your cash flow. It also helps you set a more realistic budget. Knowing how much you’re spending lets you find ways to get higher sales to cover your business costs or figure out how to reduce your expenses.
Determine your priorities
Knowing your priorities is a necessity when you’re running a business. It allows you to act quickly and guides you when making decisions.
When setting your financial priorities, it’s important to:
- Know your objectives - What are the results you want to achieve?
- Consider your resources - Do you have enough money, time, and talent to achieve your desired results?
- Allot a reasonable timeframe for your projects - How long does it take to achieve your desired results?
These three elements — objectives, resources, and timing — are interdependent. Meaning, you can’t achieve your desired outcome if one of them is missing.
Meanwhile, it is also helpful to use these three categories when setting your priorities: critical, important, and desirable.
- Critical priority - refers to projects that you should accomplish no matter what.
- Important priority - refers to initiatives that can bring positive results to your financial performance. For example, automating your accounting processes to reduce errors and lower costs.
- Desirable priority - refers to projects that you would like to do but your resources are unavailable at the moment.
When you’re done identifying your critical, important, and desirable priorities, you can start setting objectives and allocating time and resources for each project.
Set SMART goals
Once you’ve identified your priorities, you must identify which of them are achievable in the short, mid, and long term. To do this, you can use the SMART strategy. SMART stands for goals that are Specific, Measurable, Achievable, Relevant, and Timely.
SMART goals are pretty explanatory. It means creating goals that you can achieve within a specific period, including your means to do so.
Here are some examples:
- Achieve a 10% growth in e-commerce sales every month.
- Prepare an emergency fund equivalent to my business’s six months of income by X month.
Meanwhile, this example may not be a SMART one, especially if you’re a new local business:
- Expand globally after one month.
Monitor your progress
When you’re done with your SMART goals, monitor your progress in implementing them. You can start by using spreadsheets. Or if you fancy it, you can also use an app with a more visual dashboard.
You can use the following details in monitoring your progress:
- Date Posted
- Person in charge (if applicable)
- Action Plan
- Date Due
Keeping track of your progress is critical to your success. It makes you more accountable, pushing you to see the end of your goals. In addition, it also serves as your documentation so you can see how much you’ve improved from the time you started.
Your partner in achieving your financial goals
It’s good to start the year with new financial goals. Take it one step at a time. Start from short-term goals until you can work your way to achieving your long-term goals. And don’t forget to track your progress — it will serve as your receipt showing you how well your business has become.
If you’re looking for a reliable accounting partner to help organize your finances, D&V Philippines is here to help. We offer top-notch yet affordable bookkeeping and accounting services specifically for small businesses. Download our guide, Investing for the Future: Adopting Cloud Accounting for Your Small Business, to find out why we’re the ideal accounting partner for your business.
This post was first published on 17 December 2020 and edited on 10 January 2022.