New Year’s resolutions can feel like a bust — and statistically, they often are. If only you had a dollar for every abandoned gym membership...you’d never have cash flow problems again!
But setting firm, trackable, achievable goals — financial goals — for your small business is crucial for forward momentum. Not only do these goals act as a compass to steer your ship, but they allow you to calculate progress and growth. Or decline. Falling short is a clear indication something needs fixing. But without measurable data? You won’t be able to tell.
It’s a new year which means it’s time for new goals. Keep reading to learn why financial goals around profitability, cash flow, and emergency funds are instrumental in keeping your small business on track.
What kind of time frame should I use?
Setting goals can actually be a recipe for failure if you don’t use manageable timelines. Bite off more than you can chew and you’ll easily get overwhelmed.
When setting goals, consider setting bite-sized short-term goals as a way to reach your long term goal. Typically a long term goal is anything that takes three or more years to complete. However, there are no hard and fast rules! Long-term goals for your small business might mean a year, with short term goals divided up into months or even weeks.
Short-term goals are the pixels that add up to the long-term goal big picture. By working in smaller chunks, you’ll be surprised what you can accomplish.
Who doesn’t want to make money?
You didn’t open your business because you love doing paperwork.
The point of any for-profit business is to make money. It’s a no-brainer. But without a plan and a goal to work toward, you could be left spinning your wheels and going nowhere fast.
The beginning of the year is a great time to set a goal to increase profits. This will mean taking a look at your bottom line, or your net income, from the previous year and aiming to increase it. If you’re just starting out, you’ll project a goal of what you intend to make.
The bottom line is arguably the most important metric of your business’s success. It’s your foundation for future expansion, improvement, and payroll. Profit is the golden ticket for growth. Business owners can use a percentage increase or an actual dollar amount for their goal.
If you set a goal to increase profits, you’ll most likely need to increase revenue as well. The two are peas in a pod.
Time to set some “top line” goals.
Increasing revenue means bringing in more money that will eventually beef up your bottom line, which in turn will allow you to expand. That expansion will then allow you to increase…you guessed it, revenue. Ah, the lifecycle of an income statement. Setting financial goals around revenue typically looks like a percentage increase.
Of course there are other ways to increase profit. Shoring up operating costs and materials budgets can certainly make a difference.
It’s important to consider what stage your business is in. For a brand new business, breaking even in your first year may be a challenging goal in itself. Your industry and business plan will help determine how large of a goal you can set.
Why set cash flow goals?
Between your top line and bottom line are all of the expenses you’ll need to cover month to month, quarter to quarter.
Setting goals around cash flow is a great way to keep your daily operations healthy and predictable. Cash flow goals focus on having enough capital on hand to pay expenses without feeling the squeeze when payment is due.
However, not all cash flow goals are about increase. Maybe you’ve taken out a loan as part of your business plan. Or you’re using a line of credit to help weather the slow season thanks to your business bank account. You’ll need to pay those expenses off.
In addition to covering basic costs, cash flow goals can be centered around limiting the need for borrowed capital or paying off debt.
Should my small business have an emergency fund?
The 2020 pandemic was an emergency fund eye-opener. It’s now 2022 and some small businesses are still feeling the effects.
Setting goals around an emergency fund is a great way to get the year started. This could look like adding routine contributions to your emergency fund into your budget. Or starting one in the first place!
Life happens. Clients are late on payments. You suddenly need to replace an expensive piece of equipment. You have an unexpected opportunity that requires extra capital. Without an emergency fund, surprise expenses may be impossible to cover.
Contributing to a rainy day fund for the unthinkable — or just the inconvenient — is a great habit to get into. It’ll keep your blood pressure low (or at least lower) and feels even more necessary after the disruptions of 2020.
If you're just getting your business off the ground, money can be tight. Focus on small contributions to your emergency fund. As you increase your profits, increase your contributions.
Ready to take action?
Running a small business is a constant work in progress. The faint-of-heart need not apply.
But evolution doesn’t have to be scary. Especially when it comes to money. Setting goals and sticking to them will create structure and a framework to grow your business successfully. It will also offer a safety net should the unthinkable happen.
Need help sorting out your bottom line? Reach out to KYN Accounting today for friendly advice about reaching your business goals in the new year.