Setting financial goals for a business can help your company prosper and can keep business owners focused. However, many people are unsure of which financial goals are important or how to determine the best financial goals for their company. It is important to note that all financial goals do not have to be numerical. However, goals must be realistic, measurable and reflective of the business’s age.
Use the guidelines below to establish financial goals for a business.
First Year Goals
The first year in business is all about managing expenses and becoming established. While some businesses may turn a profit in the first year, this is the exception rather than the rule. First year financial goals for a business include:
Managing Cash Flows
Cash flow simply means the way that money moves in and out of your business. In order to manage your cash flow, you need to understand when your company can expect income and expenses. In many businesses there is a lag between when work is performed and when payment is received. During that time frame expenses may become due. Monitoring cash flows can help your business plan to deal with lean times. Additionally, understanding cash flows gives business owners insight on when they need to hold, rather than spend, income.
Identifying Your Customer Base
What is your target market? What types of individuals would be interested in your product or service? What do you know about those individuals? In the first year of business, it is important to know who your customer is and learn about their spending habits. Your marketing efforts must specifically target your customer base. In the first year of business, much of identifying the habits and motivations of your customer base will be done by trial and error. Some of your promotions and offerings will work well while others fall flat. As you learn more about your customers, be sure to tailor your offerings to their needs.
Create a Budget
Creating a budget can be difficult during the first year of business when revenues are unpredictable. However, it is important to outline and adhere to your expense budget. Sticking to a budget can help to ensure expenses are controlled and that your plan remains on track.
Acquire Financial Business Knowledge
In order to run a business, it is important to understand what is required of that business. Even if you plan to use the services of an accountant, business owners must be able to read and interpret financial statements. Take time to research and understand the financial principles that apply to your industry. You are in the business to make money and should understand what is required in order to make and sustain a profit.
Five Year Goals
By a company’s fifth year in business, the company should be more stable and be focused on growth rather than becoming established. Therefore, the fifth year financial goals for a business should be focused on continued growth.
Revenue growth is crucial for your business to prosper and to continue moving forward. While it is normal to see little to no growth in the first years of business, by year five you should be able to set goals and benchmarks based on past performance. It is important to make sure your goals are specific and realistic. For example, for most organizations it is unrealistic to have a goal of increasing sales by a million dollars for the third quarter. Setting a goal to improve past performance, such as increasing revenue by 15 percent, is realistic and motivational.
Investing in your staff can be difficult during the first few years of business when limiting expenses is so important. However, employees are often your most important asset. This is particularly true when working with few employees. Allocate some of your budget to providing training and development opportunities for your employees. Consider instituting an employee recognition program. If your business is not already doing so, work with a planner to determine the cost of offering employee benefits. Investing in your employees has finite cost, but infinite rewards in loyalty and productivity gains.
One of the largest threats to a NYC business is uncontrolled expenses. In fact, expenses largely account for the difference between revenue and profit. During the fifth year of business, review all of your expenses and eliminate waste whenever possible. You may find that your business now qualifies for discounts because of its increased size. Review contracts with utility companies, insurance carriers and other service organizations to determine if you’re receiving the best rate. Even if you do not change providers, having other quotes can strengthen your position to negotiate.
Ten Year Goals
In a company’s tenth year of business, you are likely well established in the industry as well as your community. Ten year goals should focus on continuing to move forward and strengthen your position while planning for long-term goals.
Reducing Interest Expenses
Many businesses need to take on debt in order to finance operations, particularly in the early years. Evaluate how much interest payments cost your organization and then work to reduce the amount of interest you pay overall. New companies typically receive loans at higher interest rates than their more established counterparts. You can work with finance companies to reduce the interest rate or refinance debt with another company.
Increasing Profit Margins
A company’s profit margin represents the amount of revenue that exceeds expenses. Profit margins can be increased in a number of ways:
- Decreased expenses – Profit margins are improved when expenses are reduced and revenues remain the same.
- Raising prices – Increasing prices can improve profit margins. It is important to test a price increase before it is implemented. Drastically raising prices, or raising prices without notification can cost you customers in the long run.
Create a Succession Plan
A succession plan outlines what you want to happen with your NYC company and its assets once you are no longer able to run the company. Succession plans can end with the business being sold or with the business being passed onto the next generation. Failing to document your wants can have catastrophic results for your organization and the individuals you leave behind. Additionally, taking steps to document and enact your succession plan early can significantly reduce the tax burden of your estate.
A qualified, certified financial planner can assist you with setting financial goals for a business. Certified financial planners have demonstrated their ability to provide sound investment advice and direction and meet all continuing education requirements. Schedule a meeting with a planner today to outline the best financial goals for a business.