Finances   14.1.2019

How to Set Financial Goals for your Small Business

Setting financial goals for your small business is vital if you want to change the way you view your business. Using a financial goal to help you achieve something at the end of a desired time period can allow you to compare the progress you made to your goals.

How to Set Financial Goals for your Small Business

Make your financial goals realistic and make them reflect what you want as a business owner and the type of business you run. (picture © pexels.com)

What are the Benefits of Financial Goals?

  • You can monitor your trajectory: Goals help you to monitor your trajectory and adjust it if needs be. Your trajectory can be adjusted based on your business’s performance and this can help you achieve your goals.
  • You can make comparisons: If you do not have a financial goal you will not be able to make comparisons between your successes and your failures. This can result in you failing to know where your business stands and when you could be performing a little or a lot better.
  • Goals can help attract investors: Setting financial goals for your small business can help you attract investors in addition to lenders and shareholders. When you can provide a financial outlook you make your business more attractive to potential investors etc. and you demonstrate control and good business acumen.

What Different Types of Financial Goals are there?

Financial goals can typically be broken down into 4 categories, and each of these categories has their own benefits and disadvantages.

  • Blue sky: With a blue sky target, the sky is the limit. This goal could be ideal for your small business if you would like to see your profits soar. New start-ups tend to have a target such as this and they typically have a lot of investors or they want to push for a huge profit. If you continually push for more profits there is no limitation on your business’s growth or possibility. However, blue sky targets are not ideal for everyone as they are incredibly unstable and your business could ultimately crash and burn.
  • Realistic: This type of target tends to be the most common financial goal set by small businesses. Relying on data from previous years, realistic goals can promote stability and help you to move forward with your business. When you use your past experience you can make realistic goals and assumptions about where your small business is going.
  • Lowball: A business that fails to meet its shareholders, lenders and investors targets can be very demoralising. Any business that fails to meet these financial targets is not going to last long at all. If you think your business is set to have something of a bad year the best thing you can do is to set low financial targets. Having low targets can help you avoid a lot of problems and make achieving those targets much more likely. Targets such as these can offer stability as such, but they can also fail to inspire growth and development. Targets such as these can also alter your performance as you may not have as much motivation to evolve your business.
  • Stretched: Stretched targets are quite similar to realistic ones, however, they push your small business a little further. Using the data that you would have used to set those realistic goals you then think about the aspirations that you have for your business. You also need to consider whether you can focus on a higher level of growth. The good news is that stretched targets are not as irrational as blue sky targets are as such, but if you fail to achieve your first projection you will be lagging behind all year. This is why a stretched target can be bad when it comes to investor confidence and morale.

Setting your Financial Goals

When it comes to setting your financial goals you need to consider what it is you would like to achieve. You also need to consider what your business can realistically achieve. Setting a goal or goals that fail to reflect your businesses capabilities or your dreams may not result in success. Aiming for blue sky goals when you own a small gardening business will not turn it into a multinational corporation. You need to think about and understand your industry, your businesses potential and your personal goals.

Make your goals realistic. Pick a target that reflects what you want as a business owner and the type of business you run. When you set a target you can start to move your business forward and with a better sense of understanding and control of your finances.

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