You might have heard different people ask you about your financial goals or simply ask you to set them, but still you don’t have any set financial goals, you don’t even know what all the fuss about financial goals is – after all, you’ve been doing fine without it so why bother?
What are Financial Goals and Why Are They Important?
Financial goals are written statements that describe the priorities and targets you set for how you want to spend and manage the money coming into your business within a deadline. It is like a road map that provides a reference for where the business is going.
Setting financial goals whether short, medium or long term is important because for starters, it gives a clear picture of where your business is headed financially. It helps you become more conscious of where your business is financially and whether it is going in the direction you want. If you don’t set financial goals you’re more likely to spend cash more freely, you’re more likely to focus on every day expenses and less likely to provide funds when you need them for emergency expenses.
Apart from some of the already mentioned benefits that setting a financial goal would do for your business, it helps make your business more attractive to investors and lenders. You understand that one of the most important areas of evaluation for investors and lenders is the financial performance of your business. By providing a financial outlook for your business and how it has performed over time in relation with your financial goal you demonstrate to that you have a clear direction for your business and have good financial management knowledge. And that is a big plus in securing that investment or loan.
How to Set Financial Goals for Your Small Business
Now, that you know the benefits of setting your financial goals, how do you go about doing that exactly? Here are a few steps that would help you set financial goals for your business:
1. Small Business Financial Evaluation: Like setting any goal, the first step is to understand the current state of things, what is the state of your small business financially? Before you start listing out your financial goals, you should have carried out a financial evaluation of your business, this an essential first step to setting up realistic financial goals.
2. Write Your Goals – Make them S.M.A.R.T: The next step is to write out your financial goals in so doing you should ensure that each goal is S.M.A.R.T. This acronym means that each financial goal you set must be specific, measurable, attainable, realistic and timely. One example of a S.M.A.R.T financial goal can be for instance to “Reduce our debt by 25% by the fourth quarter of 2020”. This goal is specific enough about its purpose, it is measurable, it is realistic and time bound.
3. Create Action Plans: How do you plan on achieving your financial goals, what specific steps do you plan to take achieve your financial goal of reducing your debt by 25% by the Q4 of 2020. This is where action plans come in, they are steps or tasks that are you have to carry out to achieve your financial goal. It is important that you make your action plans specific to a specific financial goal and include who is responsible to carrying out each task. For instance, one action step we can do to help us achieve our financial goal of reducing our debt is to ‘create a loan payment structure that helps us achieve that goal’.
4. Track and Evaluate Performance: The next step is to make out time to track our financial performance in relation to our financial goals whether annually, quarterly or monthly. This tracking of progress can help you fine tune what actions you can take to better achieve your goals and how well you fared.
Of course it is important to know that your financial goals can vary in time frames, you can create smaller financial goals that will help you achieve bigger ones still.
Setting up financial goals has so many benefits and these benefits would clearly help put your small business on the path of growth. Now with these simple steps you can get started on your financial goals, and enjoying all the benefits that comes with it.