SETTING FINANCIAL GOALS – FOR THE NEW FINANCIAL YEAR

Posted on Posted in Business Budget

July 2017As owner-manager of your business or as the business manager, you’re in control of your business’s financial needs. It is important to realise, that the financial side of your business is as important to its success as is the quality of what your business sells or produces. For this reason, you need to step back at the end of each financial year (EOFY) and take the time to reflect on the performance of your business for the past financial year. This will involve having to:

  • Review your business’s financial performance for the “past” financial year to see if your business achieved its financial goals; and
  • Plan and set realistic financial goals for the “new” financial year.

 

Financial Knowledge

Many small business owners start their business based on the expertise and knowledge they have with the products or services their business provides. However,  they may not have a good understanding of the accounting side of their business.

If you are an owner-manager (you are the “boss”) and even if your financial knowledge is not very good, you still need to be aware of what is happening financially, in your business.

 

Gaining Clarity for your Financial Goals

When planning and setting financial goals for your business, you need to gain clarity for what you Goal Settingwant your business to get or to achieve and for making its financial goals come true. You also need to ensure that they are effectively communicated to your team members. To gain clarity on your financial goals and to allow you and your team to start working on your financial goals. You can start by asking yourself a number of questions that are related to your business. For example:

  • What do you want your business to achieve?
  • What is the driving force behind what you do?
  • Do you just want to make a profit and create wealth?
  • Do you want to build up your business so that you can make a profit and then sell your business at a later date?

Once you are clear on your overarching financial goal, you can start by breaking it down into smaller actionable steps.

 

Be SMART when setting your Financial Goals

 

When setting your financial goals you will be more focused if your financial goals are set on being SMART (specific, measurable, achievable, relevant, and time-based).

Financial Goals - ImageIt is important to realise, that your financial goals should be clear, manageable, and specifically tailored to your business’s needs. For example, instead of saying you would like your business to “grow in the new financial year”! A better alternative would be to consider SMART financial goal setting. This will enable you to:

  • Increase your business’s sales by twenty percent per quarter; or
  • Increase your business’s revenue by twelve percent in the next six months.

Planning and Setting your Business’s Financial Goals

When you are in the process of planning, and setting your business’s financial goals and to help you better understand some of the financial reports and accounting terminologies used. Here is a list of answers to some Frequently Asked Questions (FAQs) that you may find useful.  If you have any further questions, or your require assistance, please Contact Us.  

What is Cash Flow Planning?

Cash flow planning represents your business’s ability to maintain enough capital to cover its basic expenses. Knowing how much you will need to pay for your business’s expenses is an important part of cash flow planning. A point often overlooked by many small business owners, is that they don’t prepare a cash flow statement.

 

What is a Cash Flow Statement?

Your cash flow statement is the most important of the financial reports prepared. The cash flow statement reports your business’s cash receipts and cash payments over a particular period of time (i.e. it leaves out transactions that don’t directly affect cash receipts and payments).  The creation of a cash flow statement will let see straight away:

  • The exact amount of money your business takes in each month; and
  • The exact amount of money it owes each month.

 

Understanding your Business’s Profit and Loss Report

Your profit and loss report will record your business’s earnings and expenses during a period (usually monthly or quarterly). It will also show the results of the following activities during a period:

  • What your business has done with its profits?
  • How much is being paid out in dividends?
  • How much is being retained for your business?

 

How to Read your Business’s Balance Sheet?

To understand how to read your balance sheet, you should first, keep in mind that it cannot be used as a reliable guide to your business’s future performance, but rather, as a snapshot of your business’s position at a specific date.

Your business’s balance sheet is a detailed statement  that:

  • Summarises your business’s assets and liabilities; and
  • Gives you a picture of its wealth at the time. 

Can I Increase my Business’s Revenue?

To understand how increasing your business’s revenue works, you first, need to understand how Goal Setting2revenue differs from sales. For example:

  • “Sales” refers to the volume of sales (quantities sold) by your business.
  • “Revenue” refers to your business’s earnings (i.e. what your business makes in dollar amounts from its activities).

When considering increasing your business’s revenue. Don’t just set a generic financial goal of increasing its sales, you should work towards:

  • Setting specific revenue goals for your business; and
  • Monitoring and reviewing these revenue goals each quarter.

Can I Decrease my Business’s Costs?

Interestingly, many small businesses fail because they do not control their costs. For this reason, you should review your business’s expenses to see if you can:

  • Cut utility costs.
  • Decrease interest payments.
  • Reduce waste.
  • Negotiate better contracts.
  • Find other efficiencies you have as yet not considered.

What is a Margin?

A “margin” is the residual amount left after all variable expenses of making sales are deducted from your business’s sales revenue. For example, if your business sells products, then the first and largest variable expense of making sales is the cost of goods sold expense.

Measuring and Monitoring your Business’s Financial Goals

Once you have planned and set your financial goals you are then ready to action them.  A point often overlooked by many small business owners, is that they don’t regularly measure and monitor their financial goals. It is extremely important that you regularly “measure” and “monitor” your business’s financial goals as this will enable you to:

  • Make informed decisions about your business; and
  • Adjust your business’s financial strategy if required.

 

Summary

Financial goal setting is vital to the success of your business. It can help you to stay focused on what really matters for your business, while at the same time preventing you from getting sidetracked.

 

What Should You Do?

You can do one of two things. For example:

  • Keep this information in mind when you are ready to plan and set your financial goals; or
  • Contact our small business adviser who is also the “principal” of Singh Accountants. He is a professionally qualified “public accountant” and he understands through practical experience the realism of running a global business.