Financial goal setting is tricky when you feel like there are so many priorities pulling for your attention. In the busyness, sometimes clear goals don’t even get set and if they are, they get pushed to the back burner. Or the noisiest aspects of your business start to drive your financial decisions instead of the high priority areas that affect your business the most.
Let 2021 be the year your business financials start working for you by setting clear financial goals to guide your growth. But how?
Use these 5 focus areas to help you set your 2021 financial goals that will drive business growth. And reach them!
1. Lifestyle Congruence
As a business owner, you want to know your hard work provides enough money for you to live comfortably. However, this isn’t always the case. Your business could actually be thriving but at the detriment of you not paying yourself what you’re putting into it. Therefore, you need to find the right balance between a fair salary and having money to reinvest in the company.
You need what small business expert Mike Michalowicz calls “Lifestyle Congruence”. How much money do you need to meet your lifestyle expectations? How much revenue does your company need to support those expectations? If you can set goals that help you sustain your business while enjoying the level of comfort you desire, you achieve lifestyle congruence. This in turn gives you a comfortable place to continue with your business growth.
You may have already achieved this and swimming along. But, it’s always important to re-evaluate your lifestyle congruency as you business grows and your goals grow and change with it.. Take a minute and ask yourself these questions.
- What are my overall life goals?
- How do I want to retire?
- What do I want to leave to my kids?
- Do we want a second home, a boat or another big purchase?
Let the answers to those questions lead you in deciding if you need to make a change to how you are being compensated by your business.
And don’t forget to talk with your Accounting Advisor or CPA about setting up your salary (for what you do in the business) vs owner’s compensation (profit that comes from being the business owner) to maximize what your company earns.
2. Team Building
Your financial goals should consider what funds you need to further build or sustain the team you’ve built.
Building a strong team allows you to ultimately focus on the things you love about your business and confidently let your people work on the rest. Ask yourself:
- Does everyone on your team have a robust job description?
- Are your people’s roles and responsibilities matched to their skills?
- Can your business run if a key player is out of the office or does everything come to halt?
- Are there tasks that are always being dropped because no one really owns them?
Reviewing or outlining an organization chart provides an easy way to review your team, spot weaknesses, address efficiencies and ensure you have room for growth.
Take a look at your team now. It’s not only about adding new positions and hiring more people, it’s also about proper role alignment with the people you have. Can some responsibilities be assigned to a current team member? Is one team member assigned a task they really aren’t skilled in?
This practice allows you to discover what is missing from your team now and where you want to ultimately grow. Your business financial numbers can help you set a financial milestone or sales goal to give you confidence in your hiring.
3. Evaluating Employees
As mentioned above, building your team is important but also taking the time to evaluate your team members is one of the best ways to ensure you are taking care of your business’s bottom line and the people who are helping you run it.
Because good people are your most important assets, your financial goals should consider what funds you need to further grow or sustain the team you’ve built. Putting a plan in place to evaluate performances and growth will help you keep the strong people you have.
- Are they performing to their potential and leaving work feeling fulfilled?
- Are your team members empowered to solve problems as they arise?
- Are you growing them so they want to stay?
- Are they moving up? Are they making more money?
- Are you building up the management to be part of the executive team?
- Do strong team members simply need more training? Or are there some you should replace?
Your financial goals should consider your strongest employees and look for ways to reward them and keep them engaged. You should also consider where in your growth strategy you might need to expand the team.
Unfortunately, you might also have a situation where you realize you have too many people for the amount of work available. And hard changes will need to be made. While this is difficult to manage, once you get the right size team, you’ll find your business is more efficient and your profits are healthier.
4. Cash Reserve
Ideally, your business needs at least three months cash reserve that allows you to stay afloat without a single sale coming in. Most businesses learned this firsthand in 2020. Your first step, therefore, is to understand your monthly costs. Once you know the amount you need to meet your financial obligations, you can begin saving.
But there’s a step two to cash reserve and it’s the more fun part. The next step in your cash reserve effort supports your growth and your future plans. With a strong cash reserve, you can take advantage of growth opportunities when they arise without having to rely on debt.
The best way to do this is to consider your cash reserve as a fixed expense so you never miss a contribution to your savings. How can you use your current sales to build your cash reserve? If you don’t have surplus cash, how much do you need to increase your sales to help you get there?
While it takes some time to build saving consistency for your cash reserve, having it included in your financial goals helps you at least acquire some form of emergency funds as you build this new habit. The reserve will start small, but the better you become at financial planning, the larger your safety net and (growth account!) becomes.
5. Evaluate Your Product and Service Line
Many small business owners make the mistake of thinking growth is only found through selling more. However, that is not always the case. Every product and service has a normal evolution, think landlines and video tape rental (sorry Blockbuster). Product and service evaluations help your business stay at the forefront of what the market is doing and will show you where your biggest opportunities lie.
Sometimes, you have to downsize your offering by eliminating items that prove to be high touch but low profit. Another strategy is to look for ways to tweak your process to reduce production costs while maintaining the same level of quality for your product or service.
Through this evaluation process, one of our clients learned that a service he was offering to his customers was actually costing him money. So the profitable side of the business was paying for an offering that was not pulling its weight. The numbers showed him he either needed to remove the offer or increase the price.
He ultimately decided to remove the service and even though revenue went down in the short term, his profits rose because he wasn’t using them to pay for the other service. And as his team focused more on their profitable core offering, revenue began to shoot up as well.
By evaluating your product and service line you can identify opportunities and challenges presented by loss leaders and the product mainstays of your offering.
Let the Business Compass Program Help Set Your Financial Goals
If you find it difficult to tackle financial goal setting, a business coach or Accounting Advisor can offer valuable insight to set you on the right path for effective financial planning.
The Business Compass Program was made for entrepreneurs who want to conquer their financial goals with Clarity, Confidence and Control. Once your goals are set, our process helps you navigate your business growth using your real-time financial data all year long.
For more clarity, confidence and control of your business financials, visit our Entrepreneur’s Guide to Accounting for more valuable articles like this one.