Business is all about goals. Whatever the industry, all entrepreneurs share a common one: to be their own boss, make their own way, and carve out their own place in the market- in short, to make a living on their own terms. This goal is broad, however. If you’re serious about reaching it, a series of smaller goals or milestones have to be reached first. That’s why it’s important to establish specific financial goals. Without doing so, it’s almost impossible to track your progress towards true financial freedom.
The question is how to set them. Should they be set in terms of raw profit? In terms of growth achieved from previous years or months? In comparison with the competition in your industry? The answer, in a nutshell, is all of the above. Mapping out your path requires paying close attention to how much your business is making, how much it’s growing, and how well it’s competing in the marketplace.
Financial goals are especially important in the beginning, when they represent the steps between the idea of a business and a sustainable financial reality. Without careful, ambitious (but realistic) goals in place, it’s unlikely you’ll get off the ground-even if you’re selling. In education, there’s a concept known as backwards design: you start with a desired endgame, and tailor all planning, execution, and even improvisation towards achieving it. Business works the same way. Before you make any move, you’ll want to ask yourself how it will affect your ability to hit that next milestone, that nearest financial sub-goal.
For example, if your product is something educational or informative, like a course of study, determine how many courses you’d have to sell to reach a desired monthly revenue. If the goal is $5,000 for the month, you’ll need to sell 100 courses at $50 each in order to stay on track. If you’ve only sold 30 by the middle of the month, maybe more time has to be devoted to marketing. Maybe you’ve surpassed the goal by the middle of the month, and can devote time to analytics concerning why it sold so well. Either way, a specific goal is needed to help you establish priorities.
With those priorities established, you can continue to move through the plateaus of your business’s growth, always using your financial goals as the yardstick of your progress.
Determining where exactly to set your goals is the most challenging part, and will vary from business to business and product to product. In my experience, it’s best to establish a firm range of numbers, with the low end representing what you need to achieve, and the high end representing a new plateau or ideal accomplishment. This allows you to be realistic about what your business needs to do for survival, while being optimistic about its full potential.
To establish the low end, or minimum goal, you simply have to reckon all expenses and surpass that number. Professional expenses like materials, paid hours of labor, hosting fees, etc. are obviously parts of this calculation, but so are personal expenses, right down to the cost of lunch. This has to be a ruthlessly honest calculation, so that it represents a legitimate minimum. If you don’t make this number, it’s time for drastic measures. Even if you’re in the type of business that typically loses money at first (like a restaurant or bar), it’s important to establish how low is too low.
To establish the high end, choose a number that will allow your business to move on to another, loftier goal. How much money would you need to reinvest in order to produce that new product? How much would you need to build that addition to your location or bring in that new equipment? At what point could you afford to bring in a new team member? Whatever the high-end goal is, make it something that will allow you to plow your success right back into the business in order to move forward towards the ultimate vision you started with.
As you establish these goals on a monthly, quarterly, and annual basis, bear in mind the need to maintain the gains you’ve made. If you’ve sold just enough to meet a certain goal, remember that “customer churn” is always working against you, and stay relentless in your pursuit of new business. Parlay the brand loyalty you’ve built into an always-refreshing stream of new customers, so that your foundations stay strong as you reach for the next milestone.
Sticking to your goals
Whatever financial goals you set, make sure that they’re firm. Having the gray area between the low and high ends will give you room to accommodate reality, but it’s important to commit fully to the numbers you’ve mapped out. Avoid “moving the goalposts” within the term established. If you fall short, figure out why and adjust accordingly. If you exceed the goal, reinvest the excess towards meeting the next one. If you simply meet the goal, celebrate it. Take the time to be proud of your accomplishment, and “reinvest” the gains in morale.
If you’re working with a partner or group of partners, be sure to have an open, precise and clear conversation about financial goals. Every partner has to agree to each goal, and every partner should have input when it’s time to establish them. Have an honest conversation about what goals are realistic, and what goals will move your company to the next level.
I’ve found that the most common mistake new entrepreneurs make in establishing their goals is setting them too low, rather than too high. Don’t be afraid to be ambitious, even as you’re being realistic. If your goal is easy to hit, it’s too low. If there’s zero doubt as to whether you’ll hit it, you risk plateauing in the long term. Growth, while exciting, should be a little uncomfortable. It should involve a certain level of risk. Tough but achievable goals force you to stay on your toes, and reinforce your commitment to innovation.
If you’re new to the world of independent business (especially if you’re pursuing your business on the side at first), get into the habit of setting financial goals early. Even if it’s as low as a few sales a month, or $100 in revenue, or even if it’s not a goal that represents profit, get into the habit. It will train your mind to see things in terms that make for big success down the road.