As a business owner, it’s often easy to get caught up in running your business with just one financial goal in mind: sales revenue. However, you started your business with a product or service designed to earn profit. Revenue itself is not a financial goal. Instead, financial goals provide you with tangible, measurable milestones you can set to reach your full potential. Having the guidance of trusted small business accountants in Adelaide is the best way to set realistic financial goals you are destined to meet.
These goals should not only be realistic, but also measurable. When you can monitor your progress, you can adjust your goals as you grow. Here we look at the topic of financial goal-setting for a business which may provide the drivers for your success.
Avoid Broad Goals
Financial goals for business should not be based on broad sweeping ideals such as building wealth quickly. Such an underlying goal will always be presumed to be the case. Instead, it is important to focus on a series of small goals that help you reach your ultimate goal. For example, if your goal is to build wealth, what number do you have in mind? If you set your ultimate revenue goal at $1 million for the year, is this achievable? If so, what steps do you need to take to get there? Increased marketing? Ramped up website? Use of referrals to generate leads and new business? New product development? Expanded services? Stronger sales team or sales training? More customer support?
Because each of these steps helps you reach your ultimate goal, they should be considered in your quantifiable financial goal setting. In turn, managers will need to determine the cost-benefits of each of the alternative steps. They will probably compete for scarce capital, and alternative projects need to be evaluated on the basis of capacity to execute financial risk and potential reward.
The Importance of Small Goals
You know you have to generate a profit to survive. However, it is the small, sometimes non-monetary goals which often contribute to financial success. Therefore, establishing the tactics that help you reach your ultimate goal becomes extremely important. You will soon discover these short-term goals require commitment and an investment of time, money, or both. Some of the most common tactics included in your financial goal setting should include:
- Branding: Establishing a recognised brand is the best way to develop customer loyalty. When you start to build brand loyalty you gain important goodwill which helps sustain your company and build entity value based on maintainable profits.
- Customer Service: Investing in top-notch customer service helps you retain customer loyalty. When you consider your job done once a sale is made, you miss out on further opportunities to leverage your existing customers. With improved customer service, you can generate an excellent reputation (including online) through good reviews. Because potential customers read reviews before making a purchase, it is one of the best ways to generate new customer interest and grow trust in your brand.
- Investing in Talent: Great employees keep your business vibrant and alive. Therefore investing in training and supporting their career goals helps attract the top talent needed to contribute to business growth. Companies that recognise the importance of their employees attract the best and retain them by nurturing an ethical and supportive culture and promoting upward trajectories for their careers.
The lesson here is that not all goals are financial in nature. Instead, the short-term goals set are designed to help you establish an ecosystem which ultimately creates the environment for long-term financial success.
Year-On-Year Profit Growth
You do, of course, need financial strategies that nurture year-on-year growth. Therefore including financial goals that help you see year-on-year profit growth is a must. Some common strategies include:
- Decreasing Costs: Cost control is often an important factor in optimising profit. Even if you increase sales volume, without also constantly looking for ways to decrease costs, your profits will suffer. Your accountant should be helping you look for ways to save by reviewing your budgeted and actual expenses. High utility costs, poorly negotiated contracts, poor project execution and poor collection processes are a few examples of items that keep you cash poor. However, an accountant helps you find smart solutions to decrease costs which otherwise may eat into profits.
- Improving Margins: If you find ways to reduce costs in production or overhead, you can improve profit margins. While raising your prices is the easier way to do this, the market might not bear the increase. Your best practice methodology is to look for production and overhead cost savings and then apply smaller price increases whilst keeping a close eye on the prevailing market conditions, noting any trends and price-sensitivity signals.
- Managing Debt: Interest expenses could be eating away at your profits without you realising it. An accountant can assess your credit to look for ways to reduce interest. The use of debt in a business is not necessarily a bad thing, but a poorly constructed treasury function in your business may be. Using short term debt for long term assets is a common mistake. Paying too much towards interest and barely putting a dent in your debt exposure is problematic. You need to find ways to pay your balances quickly. Finding the most favourable terms is a must if you want to effectively manage debt and remain solvent. One of the most critical responsibilities of company directors is in managing their short term solvency.
- Cash Flow Management: This should be an important financial goal set by every business. Finance directors achieve optimal control when they have a clear picture of when and how money comes and goes from the business’ bank account. By gaining a deep understanding of cash flow dynamics, the financial management function can budget wisely and avoid cash shortages, using lines of credit as necessary.
These year-on-year growth strategies focus on smaller, short-term financial goals that have a positive impact on your long-term growth and profitability.
Be True To Your Brand
Business must establish how you can increase sales revenue without sacrificing your brand, your company culture or how you run your business. For example, many smaller businesses will stretch themselves thin, bending backwards to meet the needs of a small, barely significant client. While all clients should be viewed as important, remaining realistic about what you do and don’t offer avoids inadvertent spending to meet unreasonable demands. An experienced accountant can help you establish your style and culture and ensure your financial goals can be achieved within your methodology of doing business. With this approach you can achieve consistent, measurable results to grow your business based on established principles.
As you can see, not all targets for your strategic goals are necessarily financial. However, when combined with a clear Mission Statement, financial goals can be a powerful driver of your success.
If you’re ready to set financial goals for your business, book a complimentary discovery meeting with the small business accountants Adelaide businesses trust. Your friendly team at Clarke & Brownrigg are here to help.