What Are Financial Goals?
Financial goals are the specific targets that you set to achieve your financial dreams. They give you something to work towards and help to keep you motivated.
Financial knowledge is the key to making financial progress. If it's your business, it's your money; make it your business to know everything you can about that money.
How to Set Financial Goals
Most people have some idea of what they would like to achieve financially, but they don't always know how to go about setting realistic goals. Financial goals should be specific, measurable, achievable, realistic, and timely (SMART).
3 Essential Financial Goals for Any Business
How many times have you heard these financial truisms?
- Don't spend more than you make
- Keep your overhead low
- Avoid unnecessary spending
- Try to increase your profit margins
Financial advice for small-business owners is easy to come by, but we often miss the bigger picture, the overarching financial goals that should guide how we build and run our businesses.
So here are three financial goals you might not have heard. These apply, across the board, to small businesses of every type and size.
Goal 1: Financial Knowledge
Delegation is a great idea. If you're not great with accounting, that may well be one of the first areas you outsource. Or perhaps you have an accountant or an entire accounting department on staff. As the boss, you must still be aware of what's happening financially. You should know where your money is going and what it's doing.
No, you don't have to keep the books yourself. But you do need to review the books, review the budgets, talk to department heads, check in on projects, and do whatever it takes to know where the money is.
For freelancers and one-man shops such as myself, it's easy enough; I do the books, so I see the money. But my challenge is in the lines that can blur when you work from home. I need childcare for date night and for workdays, internet for business use and for personal use, a printer and office supplies for my company and for my kids' schooling. It's in my best business interest to figure out exactly what portion my business needs to pay for, exactly how much is tax deductible and so on.
Financial knowledge is the key to making financial progress. If it's your business, it's your money; make it your business to know everything you can about that money.
Goal 2: Financial Management
Managing your money means making your money earn its keep.
Never let your money sit idle. Your money should always be working for you. Pop it in an investment account, a mutual fund, or an interest-bearing savings account. Lend it out and earn interest that way.
It doesn't matter if the amount you have to work with is $100 or $1 million. Every dollar you have can work for you, and should. Think of your funds as an employee. You wouldn't let your employees sit around idly on your time, twiddling their thumbs and taking up space. You give them work and you expect them to do it.
You should expect the same from your money. It takes only a little time out of your workday to manage your money; it's not an active role that you have to do every day. It's something you set up and check, just as you set your employees up with their work and check in on their progress.
Goal 3: Financial Perspective
See your money for what it is: a means to an end. Money is a tool. It's not good; it's not evil. It's not the pinnacle of achievement to have lots of it, and it's not the depths of utter failure to have little of it. Money comes and goes. It is meant to flow, not be stagnant. A prospering business has money coming in and money going out.
Keeping this perspective is tough when money is tight and you're barely avoiding the red ink, but it’s important to invest in systems and tools that will help you to meet your customers’ needs effectively. When you stop the money from flowing in, your business will soon run dry. Stop the money from flowing out, and the business will stagnate. No money out means you're not growing and improving your business. Your customers will soon catch on, and the money will stop coming in.
Sure, apply the financial truisms above to this goal. Don't let more money flow out than you have flowing in, but do let it flow. And yes, by all means, avoid unnecessary spending, but don't avoid necessary investments back into your business.
If you want your customers to value your business, you need to value it first.
Frequently Asked Questions
What are examples of business financial goals?
Each business will have its own specific goals that are tailored to its own unique circumstances. However, some common examples include:
- Increasing revenue by x
- Decreasing expenses by x
- Maximizing shareholder value by x
What are SMART financial goals?
SMART is an acronym that stands for Specific, Measurable, Achievable, Realistic, and Timely. Here is a breakdown of each component:
Specific: When you’re setting a financial goal, you need to be specific about what you want to achieve. Vague goals like “saving more money” or “getting out of debt” are not going to cut it.
Measurable: A goal that is measurable can be quantified so you can track your progress. For example, a goal to “save $500 by the end of the month” is much more measurable than “saving money.”
Achievable: Your goal should be something that you can achieve. If your goal is too lofty, you’re likely to get discouraged and give up.
Realistic: In addition to being achievable, your goal should also be realistic. You need to consider your current financial situation and set a goal that is feasible. For instance, if you are currently in debt, a realistic goal might be to “pay off $5,000 of debt within two years.”
Timely: A goal without a timeline is not really a goal at all. To stay motivated, you need to set a deadline for yourself.
If you want to be successful in achieving your financial goals, you need to make sure they are SMART.
What is the importance of setting financial goals?
Setting financial goals is important because it allows you to have a clear idea of what you want to achieve financially. Having a goal gives you something to work towards and a way to measure your progress. Without a goal, it can be difficult to stay motivated and on track with your finances.
A version of this article was originally published on May 02, 2012.
