Business financial goals are essential for a business to improve its productivity and drive business growth. Considering the nature and scale of your business, you must establish the right financial objectives that will enable you to increase your margins, manage expenses and improve performance. Thus you must set financial goals that serve as stepping stones toward the core objective of business sustainability and progress. Read this article to learn eight financial goals you can set for business growth.
Increase Profit Margins
A financial goal that can be set with a particular focus on profitability is improving the business’s profit margins. This means that you must aim to increase the percentage of revenue that exceeds your business operating expenses. For this purpose, you can set your industry’s average profit margins as a benchmark to have a specific figure that you can aim to achieve in a certain period.
Maintain Financial Stability
While increasing revenue is a vital financial task that every business owner should aim for, financial stability must be the main focus in taxing times. If the business encounters a challenging time, it must set a short-term financial goal to maintain its current profitability level so it can meet its financial obligations and focus on growth in the long term.
Improve Cash Flow Management
One of the main reasons many businesses fail is poor management of their cash flows. Forecasting and improving cash flow management can decrease the chances of resource shortages that may otherwise render you incapable of covering the business expenses and running your operations. Once the cash flows are in your control, you will not have to worry about running the payroll or paying for operational expenses.
To achieve this, you can negotiate with your clients to reduce the payment time and ask your vendors to lengthen the payment cycle. Analyzing your cash flows by regularly monitoring your receivables and payables is also helpful. For instance, if you have ongoing projects, you must define the financial scope for a project to have a clear picture of the outflows and when you can expect paybacks.
Improve Sales Volume
If your business relies on sales for revenue, be it products or services, one financial goal you can set is increasing your sales volume. Each business has some fixed costs which it incurs regardless of the sales volume. Increasing your sales volume allows you to leverage the fixed costs across a bigger revenue base. This will result in a larger customer base and, eventually, more profits for the business.
Reduce Debt
Taking debt at times becomes inevitable, but it also means paying interest. It can also lead to a financial crisis if the business cannot make debt payments in time. Therefore, a financial goal you can set for your business is reducing the debt so you have to pay less interest. It will also be easier to make periodic debt payments, which will help improve the business’s credit score and allow you to secure future funding on better terms.
Review your debt scenario and determine the debt-to-income ratio to assess your working capital situation and whether it is sufficient to cover the debts. Next, prioritize your debts and cater to them accordingly.
Reduce Business Expenses
An obvious way to increase the profit margins is to reduce the overall business expenses. For this purpose, you must first consider improving operational efficiency, i.e., optimizing your resources and devising ways to get things done faster. Besides these aspects, consider your administrative costs and assess where money is wasted. For instance, consider automating tasks through low-cost software that wastes money and time and how to reduce utility expenses.
Optimize Products and Pricing
If you have set high prices for the products or services you offer, you may miss out on business opportunities in terms of lost sales. Your competitors will leverage this, eventually impacting your business profitability. To resolve this, consider the product or service value, your profit, and customer expectations and set a price where there is an overlap between these three factors. You can also check what the competitors are asking for similar goods and services to get an idea of how to optimize the pricing.
Invest in the Business
If you want to grow your business, the best way is to put the earnings back into the business. You can determine a certain percentage of the profits that will be reinvested into the business. This will also lead you back to devising means to increase profits so you have more to reinvest. This may include reducing expenses, increasing sales volume, etc. To invest in your business, consider which aspects may yield the most impact. For this, check the areas where the business is not meeting its goals and focus on boosting performance. This could include investing in employee training, technology for better management, sales and marketing resources and strategy, etc. Focusing on reinvestment will drive business growth and prompt you to strive for continuous improvement.
Final Thoughts
Having realistic and measurable financial goals gives businesses a clear direction and enables them to determine a plan of action. However, setting financial goals does not end here! You must continuously monitor your progress and document the actions taken for strategy implementation and their impact. Whichever financial goal you set for your company, you must define the metrics against which you can assess your performance and determine if you have successfully achieved your target and what changes you must make to your strategy to improve the results.
