You want clarity over your numbers and to be empowered to make better decisions towards growth in your business. Why? Because you’re a savvy entrepreneur who wants more out of your business than for it to just, tick along… Step out of your comfort zone and get a real handle on your financial situation. In this article, we’ll guide you through setting and reaching your financial goals – and what better time to start than the new year!
What exactly are financial goals
Financial goals are specific objectives (short or long-term) related to your income, profit, expenses, savings, margins and other key metrics. You can set financial goals for a period of 3 months, 6 months, and 12 months. At a minimum, you should ideally be setting them yearly.
Why is financial goal setting important
Financial goals give you direction, a plan and objectives to work towards. Without them, it’s like steering off the path and driving in circles, without ever getting to a destination. This leads to a lack of profits to reinvest back into your business, or enough funds to cover your expenses – ouch!
A financial plan helps to ground you to see the bigger picture of where your business is currently at, where it’s going and helps you to make smart decisions towards profitability. It guides you with budget setting, forecasting and how to prioritise your spending to get the best ROI.
How to set financial goals
1. Review your current situation
The first thing to do before jumping straight into is to get clear on your current situation. This provides you with a base reference of what can be improved and what you’d like to aim for. Start by looking at your previous year’s financial goals – ask yourself these questions and why they resulted in those outcomes.
- What did you achieve last year?
- Which of your goals were reasonable and which need to be adjusted?
- Did you reach your financial targets?
- What was your revenue? (the income received for your business)
- What were your expenses? (costs to operate your business)
- What did you profit (revenue minus expenses)
You’ll be able to answer some of these questions if you’re aware of your current financial data, which you can retrieve from Xero or other accounting software. Xero’s Profit and Loss report can demonstrate your revenue, expenses, and gross profit over a set period. Our recent blog provides a lot of valuable tips on this, check it out here – How to use Xero’s Profit and Loss report to make smart business decisions and more profit.
2. New year, new goals
Now that you’re aware of what you’re working with and learned some of the pitfalls from your previous year, it’s time to start fresh with some new goals.
Outline what each of your financial goals for both short-term and long-term are. For each goal over specific time frames, figure out what you want to achieve and the action steps required to meet each of these goals.
For example:
- Create a new offer for X target customers over X months to increase revenue by X.
- Save $X each month by cutting back on X expenses.
- Reinvest $X towards marketing to increase monthly revenue by X
3. Think SMART
Your goals are best made SMART (aka Specific, Measurable, Achievable, Relevant and Time-based). SMART goals give you parameters, hold you accountable and help you to avoid over-idealistic or vague goals that aren’t realistic to attain.
So, let’s break them down further:
SPECIFIC
Get specific with what you want to achieve with your goals, including numbers, timeframes and action points.
MEASURABLE
By making them measurable, you can assess how you’re tracking and adjust if you need to.
ACHIEVABLE
You want to make your goals a challenge but realistic. For example, if your business made $30K in revenue in the previous year, having a goal to increase to $1 million is far-fetched based on your previous company performance.
RELEVANT
Your goals need to apply to your business and remain in proportion to the size, industry and capabilities of your company.
TIME-BASED
Give your goals a time frame (monthly, quarterly, yearly) so you can hold yourself accountable for when this goal needs to be achieved.
For example:
Non-SMART: I want to make more money
SMART: I want to make $15K more in revenue in the year 2024
4. Turn your goals into action
Now that you’ve nailed your goals, it’s time to allocate specific actions to each of them. You can split your goals into quarterly milestones to avoid the overwhelm and make them more manageable. Incremental action is better than no action at all. Track your progress and see yourself getting closer to nailing those goals!
Examples of action points could look like launching a new product/offer, evaluating your expenses and your ROI, targeting a different customer group, or changing your pricing model. Consider marketing tactics, allocated resources, and required expertise, i.e. do you need to outsource to a specialist to achieve one of your key goals?
Example 1:
- Financial goal: Increase revenue growth through the increase of X new large retainer contracts in 1 year.
- Action: Cross-sell small ticket clients to move towards larger contracts with communications and targeted email campaigns and messaging.
Example 2:
- Financial goal: Gain 20 leads each month through social media channels in 1 year
- Action: Hire a social media expert to create a strategy and manage our social media channels to grow brand awareness and manage our online community to increase engagement and sales.
The key for each action point is to ask yourself whether it’s going to lead you closer to your goals.
5. Track progress and revisit your goals regularly
A part of being a successful business owner is having the ability to adapt to change, and be flexible to remain competitive in today’s economy. Unexpected events can happen, circumstances change, staff move on… Change will require you to adjust your strategy and budgets. Regularly track the progress of your goals as it determines whether you need to make necessary adjustments – and if you’re making good progress, be sure to celebrate those wins to keep that motivation up!
The type of financial goals to set and why they’re important
Your business is unique and on its own journey, so the financial goals you set need to make sense for your business. However, you’d likely agree that most companies want to be making a profit – because without it, it’s impossible to keep your business running.
The type of goals to include:
- Increasing profit margins: This is a true indicator of how well your business is doing. Healthy profit margins mean you can reinvest in your company and reduce the likelihood of cash flow issues.
- Improving cash flow: Cash flow is the primary reason businesses fail, so you want to be looking at a variety of strategies – from negotiating better deals with suppliers, shortening payment terms to ways you can drive revenue..
- Increasing savings: Circumstances and the economic climate can change, so make sure to future-proof your business with an emergency business fund that’ll cover 3-6 months of your operating expenses.
- Boosting revenue: This could mean increasing your pricing, optimising your marketing efforts, or diversifying your income streams.
- Increasing director’s earnings: Often small businesses cover their company expenses, but there’s not much left over to pay themselves a wage. Make sure to factor this into your financial goals, so you have a business that’s able to pay you a salary also.
How a bookkeeper can help you
Before you start setting goals, your accounts need to be up-to-date. If your books are a mess, they won’t provide you with accurate data, which won’t set you off on an ideal start.
At Honeybooks, we’re your bookkeeping pros where numbers are our ‘zone of genius’ and we love getting you closer to your financial goals! If you want someone to take care of your books, or some strategic advice to turn your finances (and life) around, get in touch with us or check out our bookkeeping services here.
If you missed our article on How to use Xero’s Profit and Loss report to make smart business decisions and more profit – you’ll find a heap of useful info in there that’ll help with your financial goal setting.
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