Sun Tzu’s military treatise -The Art of War – has timeless wisdom for aspiring entrepreneurs wishing to scale exact heights of success. Rule 26 says this;
“Now the general who wins a battle makes many calculations in his temple before the battle is fought. The general who loses a battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat: how much more no calculation at all! It is by attention to this point that I can foresee who is likely to win or lose.”
Modern English summarizes it this way, “He who does not plan plans to fail.”Every successful business rests on the pillar of successful Strategic planning.
SMART Financial goals are an essential component of strategic plans – it’s the building concrete that holds everything together. Does your business have well-formulated strategic plans? Have you done a SWOT analysis of your business? Have you set financial goals?
In this article, I will show you how to set goals that will propel your business to success.
What are the business financial goals?
What’s a goal? Google dictionary defines a purpose as “the object of a person’s ambition or effort; an aim or desired result.” What would you like to achieve as a business?
Where do you expect your business to be financially in the next one month, three months, six months, one year, three years, five years, ten years, or even twenty years from today?
This hat will determine your financial goals. Have you done a SWOT analysis of your business to determine where you are currently?
If so, identify financial goals you would like to achieve in the short, medium, and long term.
What financial goals should you set?
These questions will help you to think more clearly about your business’ financial goals.
- What is your current business financial situation?
- How are your income streams?
- What is your marketing strategy?
- What unnecessary expenses should you get rid of?
- What new income streams can you create?
Now proceed to work on the following:
- Reduce or eliminate credit cards and short term loans: Credit cards and business loans charge interest, find out the type of interest charged, is it compound or straightforward? Compound interest is punitive. Anytime you delay to pay or are in default, new investment is charged on your total balance.
- Your first financial goal should be to reduce or get rid of credit card loans and short term business loans. Calculate the amount of money you can comfortably set aside towards paying off these loans. Achieving this goal will have a bonus reward; it will improve your credit score.
- Establish a budget that is a true reflection of your income. Work within this budget. Find creative ways you can reduce your expenses and live within this budget.
- Look at your savings: Are you saving enough towards your children’s education? Do you have a disaster fund? (A savings account that can cushion you in the event of emergencies? This should be ideally six months of your monthly expenses.
- Do you have a home? Are you saving towards paying for your first house? A home will give you a sense of stability. Incorporate this into your long term goals.
- Everybody eventually gets old, are you saving for your retirement? Have a sustainable pension plan that will meet your living expenses when you are old, frail, and can no longer work.
How do you set financial goals for your business?
Financial goals are either long, medium, or short term. How do you set these goals?
Goals are about your future, your business’s future. Find the Time and block out your busy schedule, find a quiet spot, have a notebook and pen, think through your goals, write down every purpose as it comes, write everything down, you will restructure this draft later.
During the restructuring, decide on which goals should be short term, medium, or long term. Calculate how much money you need to save for each purpose. Calculate how much money you need to set aside from your current income and future income to meet these goals.
Make your goals SMART. Smart goals should be:
- Specific to your strategic plan,
- you should be able to Measure them as you reach each goal,
- Agree on each goal as a business
- They should be Realistic.
- The last T is for Time; you should give yourself a timeline for achieving each goal.
Keep revisiting and readjusting these goals as you come across new opportunities and face unexpected challenges. Your goals aren’t cast in stone.
How do you group your Financial Goals?
Your business’ strategic plans should incorporate all aspects of the company:
- Product development,
- Digital marketing,
- Business expansion,
- New branch network etc.
All these activities should be geared towards increasing your income while reducing your business expenses; the focus here is to have a healthy balance sheet.
As an entrepreneur, you know that cash flow is the lifeblood of your business; healthy cash flow will hasten your business towards achieving your financial goals.
Your goals should be grouped as follows:
- Short term business financial goals
These are goals that can easily be achieved—reducing your expenses, clearing your short term loans, increasing your services, going on holiday, etc. Short term goals should be completed within twelve months.
- Medium-term business financial goals
Goals that need one to five years are medium-term; these may include product development, business expansion, purchasing new plant equipment and machinery, learning new skills, etc.
- Long term business financial goals
Goals that take between ten to twenty years are long term; this may include your Retirement plan, a New home, Education, Increasing your branch network, etc.
Business financial goals and mistakes to avoid
The modern approach to goal setting has introduced three new acronyms, BHAG, Sprint, and Agile goals.
BHAG goals stand for Big Hairy Audacious Goals, these are those goals that look impossible to achieve, are you planning to have an international company but are still operating in your garage? That’s a BHAG goal.
Sprint goals, on the other hand, are easily achieved and measured either daily, weekly, or monthly.
Agile goals are flexible goals easily adjusted and refocused to meet unexpected challenges.
When setting your financial goals, avoid procrastination. Your goals can’t work by themselves. Put in the work. Be flexible with each goal, adjust and rewrite them as necessary; measure your progress.
Finally, celebrate every milestone – achieved goals. Reward yourself. This will give you an impetus to keep working towards the remaining targets.
Bringing it together
Financial goals will give your business the momentum it needs to keep growing. Well defined financial goals will act as a lighthouse navigating your business through stormy seas of; stiff competition, unstable financial markets, new technological advancements, etc.
Setting these goals will ensure that your business survives no matter what comes your way.