How to Set Financial Goals for a Business

By Chris O’Neal, CPA, MBA

?Your business could be a solo enterprise or a global team of thousands, but one thing is certain: every business needs to set financial goals. Not only are they essential for being self-sustaining, but they make growing your profit margin possible.?

?At the Nealson Group, we seek out clients who are goal oriented, profit driven, and challenge themselves to be exceptional

?But if you have not set financial goals before, you may be unsure how to do it. Fortunately, there are a few tried-and-true methods of goal setting.

Here is how to successfully set financial goals for your business.

?What Are Financial Goals?

?Financial goals comprise your plan for making money for your business. Profitability and cash flow are the two most basic financial goals for any business since they will allow the business to sustain itself and save enough to buy assets like specialized equipment or retail space for your business.

?Financial goals can be broken down into short- and long-term. Short-term goals can be goals you want to accomplish within the next few years. Long-term goals are goals you would like to accomplish five years or more from now.

?You might not have insider knowledge of how well your competitors are doing. However, it is possible to understand your industry's basic costs of labor, production, and profit margins. That said, good financial goals will be specific to your company.

?Why Set Financial Goals?

?Setting financial goals will improve your business's chance of success. Financial goals guide your business' focus and help you tackle the big ideas that may seem overwhelming but are achievable when broken down into smaller steps. Setting financial goals will help you establish the behavior you want to see within your organization.

?How to Set Financial Goals

There are a few different strategies used for setting financial goals. The oldest and most popular of these methods is the S.M.A.R.T. method. It's a proven method that's great for getting measurable results.

?There is also the C.L.E.A.R. method, but that will be explained later. First, let's talk about S.M.A.R.T. goals.?

S.M.A.R.T.

?S.M.A.R.T. goals are:

??Specific

??Measurable

??Attainable

??Realistic

??Timely

??Specific should indicate what you want to achieve. What are you going to do, and why? How are you going to do it??

?Measurable means a goal needs to have criteria to measure its progress. How will you know when you have achieved your goal? What metrics can be measured along the way to make sure you reach your end goal?

?Attainable means a goal is just out of your easy reach. It's achievable but requires commitment.?

?Realistic means a goal must be doable. Too low of a required effort means you aren't being challenged or motivated. Too unrealistic of a goal means you set yourself up for failure and disappointment when you can't reach the lofty expectations you have set.

?Timely means setting a realistic timeframe for your goal with a clear endpoint. This gives you a specific target you can work towards.?

?C.L.E.A.R.

If the S.M.A.R.T. method feels too restrictive or doesn't work for you, you can try to set C.L.E.A.R. goals instead. The C.L.E.A.R. goal-setting method may be better for a more agile and collaborative environment.

?C.L.E.A.R. goals are:

??Collaborative

??Limited

??Emotional

??Appreciable

??Refinable

?Collaborative means you understand that your goals must encourage your employees to work together. It also means you will work with others outside of your organization.

?Limited defines the scope of your goals. It's a mix of the specific, achievable, and timebound concepts of S.M.A.R.T. goals.

?Emotional means your goals should align with your personal purpose and passion. Goals should have an emotional connection to who you are.

?Appreciable means your large goals are broken down into smaller goals or baby steps. These steps must be small and actionable.

?Refinable means your goals should be modified and adjusted, as necessary.?

?Don't Get Complacent

?Once you have achieved a measurable level of financial success, do not get complacent. Complacency is what kills business.?

?Periodically revisit your financial goals (at least once a year) to prevent merely maintaining the status quo. Your business could be affected by changing customer wants or legal changes such as adjustments to the tax code.

?Invest some of your time and money to improve yourself and your team. Learning new skills will keep your employees engaged with their work and help your organization retain talent.

?Choose a Method and Follow Through

?So how do you set financial goals for your business? Regardless of the goal-setting method, your goals should be specific and measurable, ambitious but realistic, and incorporate your teams' strengths and recognize their work.

?Without a methodology for setting, tracking, and reaching goals, success will be a struggle for any business.?