As a compass for navigating the often unpredictable waters of entrepreneurship, having well-defined goals is key. While having non-financial business goals is important, it is virtually impossible for a business to sustain relevance without clear financial goals.
Having financial business goals acts as a yardstick for measuring financial success. These goals offer a clear perspective on the company’s ability to achieve overall financial health and its growth trajectory. Short-term business goals provide quick wins for teams, while long-term goals help leaders focus on the big picture and the overall vision of the business.
Also, setting financial targets encourages accountability and discipline, both individually and collectively. It fosters a culture of financial responsibility and transparency. However, there are always questions that arise about what kind of financial goals a business owner or leader should set. This article will help to answer some of those questions by listing 10 financial goals for your business.
Get Cash flow Positive
One of the first financial goals a business should try to achieve is getting to the point of being cash flow positive. For new businesses that are still trying to generate revenue, this is one of the first “wins” you should celebrate. Getting to cash flow positive is the first sign that you may have a potentially profitable business in the making.
Many new entrepreneurs confuse being cash flow positive with reaching profitability. While the two seem very similar, there are some key differences. Cash flow refers to the net amount of cash and cash equivalents moving in and out of a business over a specific period. A business is considered cash flow-positive when the cash inflows exceed the cash outflows during that period. This is usually day-to-day but can be for almost any period. In other words, the company is generating more cash than it spends.
Cash flow is the lifeblood of any business. Ensuring a steady stream of cash coming in and going out is crucial for maintaining daily operations and keeping the doors open. To achieve this, businesses should really pay attention to cash flow and forecast expenses. This enables businesses to anticipate potential issues and make informed decisions to keep cash flow positive
Along with controlling burn rate, getting cash flow positive is an important goal for startups to have.
Once you’re cash flow positive, the other big step is to achieve profitability. As mentioned before, there is a difference between being cash flow positive and reaching profitability. Profit is the balance that remains when all of a business’s operating expenses are subtracted from its revenues. Profits are usually distributed to any shareholders or owners, but they can also be reinvested back into the company.
Achieving profitability is another important goal for a business. When evaluating the success of a business, it is dangerous to just look at the revenue without focusing on the profits. Profit is a measure that lets you know if the business is REALLY making money.
There are, however, several different types of profits you should be aware of.
Types of Profit:
- Gross profit: This refers to revenue minus the cost of goods sold. The higher the gross profit margin, the better. It means the company is retaining more revenue after accounting for the direct costs of production.
- Operating profit: Operating profit refers only to the net profit that a company generates from its normal business operations. It typically excludes negative cash flows like tax payments or interest payments on debt.
- Net profit: This is the net income after all expenses have been deducted from all revenues. It usually includes expenses like tax and interest payments. Net profit is also known as net earnings.
Growing revenue is a fundamental objective for any business. Increasing revenue means that you are increasing the amount of money that is coming into the business. Don’t mistake this for increasing profits; we’ll discuss that in a moment. Increasing revenue means that you are simply driving sales into your business one way or another.
There are many ways a business can accomplish the goal of increasing revenue. One is to simply sell more products or acquire more customers. To do this, businesses may need to increase their marketing budget and invest in new sales channels.
Your business may only be using organic social media to reach your audience. But in order to increase your revenue, you may need to utilize mobile marketing methods, Pay-Per-Click advertising such as AdWords, or take part in influencer marketing. You may even need to try things like YouTube ads.
But, paid marketing is not the only way to drive revenue. You can also reach out to your current customers and offer discounts. If you have a product that is selling well, you may even try to create a premium version or add features to the current product and increase the price.
Increase Profit Margins
Once you’ve got your revenue on the rise, the next step is to increase the amount you keep. Every business, from a small one-person startup to Amazon.com, needs to look at increasing profitability. This is because increasing profitability is one of the most important financial goals any business could have. It ensures healthy growth and keeps investors happy.
Increasing profits can be achieved in many ways. First, you can look at your costs. Examine how much you are spending on labor, materials, apps, and software, as well as other expenses. You can also focus on selling the products that you offer with the highest margins.
For example, if you have a bakery business and your margins are higher on your cookies than your cakes, offer specials on cookies in order to sell more of them. This will increase your sales (and since they are a higher profit product) and your profit margins.
Reduce and Manage Debt
Debt can be both a useful tool and a potential burden for businesses. When used strategically, debt can help a business grow and expand. On the other hand, excessive debt can cripple a company’s financial health. The average American business carries $195,000 in debt.
As a financial goal, businesses should aim to minimize debt. You can first do this by not taking on any unnecessary debt. Avoid taking out extra loans or tapping into your business line of credit if you have cash available.
From there, prioritize paying down high-interest debt. You’ll want to start with paying off credit cards since they typically have the highest interest rates. As you’re doing this, try to maintain a manageable debt-to-equity ratio. This is a ratio that shows how much debt a company has compared to its assets. Seek to lower your ratio to under 1.0. A ratio of 2.0 or higher is usually considered risky.
Save 12 Months of Operating Expenses
Another key financial business goal example involves the building of cash reserves. In business and in life, many financial challenges can arise. That’s why having a cash savings reserve is important. For individuals, having emergency savings is helpful in case of job loss or other emergencies. For a business, it is vital for various reasons as well.
Firstly, having 12 months of operating expenses saved can be a financial lifeline for businesses during challenging times. The most recent pandemic is an example of that. Many businesses could not remain open due to not having enough money to stay in business while we experienced nationwide lockdowns.
Having cash in reserves is also helpful if sales slump. Money saved can help pay for expenses such as the cost of goods and can help continue to pay for employee salaries. Finding great employees is hard to do. You don’t want to cut staff due to not having enough to pay them.
Eliminate Unnecessary Expenses
As a part of your goal to reach and increase profitability, one objective you should also have is to eliminate unnecessary expenses. The keyword here is “unnecessary.” There are expenses that we think we need but don’t necessarily need. For example, during the pandemic, many businesses found that they did not need their workers to report to the office every day. By allowing employees to work remotely several times a week, business owners found that productivity remained steady within their workforce.
They also found that having employees work from home minimized several expenses. Your business may not be able to identify unnecessary expenses as easily as other businesses. If that is the case, here are some ways to identify which expenses are necessary and which are not.
- Regular Expense Audits: Take a look at your company’s financial statements, invoices, and receipts. Identify areas of waste, inefficiency, or redundancy and look for patterns that can be addressed to reduce costs.
- Technology Integration: Invest in cost-effective technology solutions that streamline operations and automate repetitive tasks. This includes project management tools, cloud storage, and AI-powered software.
- Remote Work and Co-working: Encourage remote work or use co-working spaces to minimize office-related costs. You may save on things like utilities and maintenance.
- Outsourcing: Outsource non-core tasks like accounting or IT support.
- Marketing Strategy Review: Analyze your marketing campaigns. Focus your efforts on those that generate the best results.
Invest in Business Growth
Businesses should always be on the lookout for opportunities to invest in growth. Whether through acquisitions, new product development, or entering new markets. One of your financial goals should be to position yourself to take advantage of opportunities to grow your business. However, in order to do so, your business needs to be financially healthy.
Improving the overall financial health of your business can be achieved by practicing good financial habits and striving for some of the financial goals already mentioned in this article. In particular, increasing revenue, managing debt, and maximizing profits.
However, you don’t have to wait until you’ve mastered those in order to begin investing in the growth of your business. You can start small if needed. Try opening a separate investment savings account for your business. When you earn income, dedicate a small percentage and transfer it into that account. Commit to not touching that account while you look for reinvestment opportunities.
By doing this, you will have allocated funds towards reinvesting in your business systematically. Once you’re ready, you can withdraw those funds and invest them in products, marketing, or team expansion.
Create Multiple Revenue Streams
Relying on a single product or service to generate all of your revenue is risky. Diversifying revenue streams can help mitigate this risk and ensure that a company remains resilient in the face of market changes or unforeseen challenges.
Begin by exploring new products, services, or markets. See if you can find a way to create more than one income source for your business. For example, if you have an online business selling a health food item on Amazon, do not neglect to create an Instagram store or your own e-commerce store to also sell your product. You may also want to develop another product that your target market will like but also target others outside of your core audience. Businesses should also seek to find passive revenue sources.
By establishing multiple income sources, you strengthen your financial foundation.
There are many types of business goals entrepreneurs and owners should pursue. However, achieving financial success in business requires a strategic approach and clear financial goals. These financial business goal examples should help clarify the direction you should take. Start with the basics and work to reach each financial goal you set. Financial goals are not one-size-fits-all; they should be tailored to the unique needs and aspirations of your business.