How To Set Financial Targets – Five Key Steps
Posted on 30th May 2022
The pandemic has shown how important it is to have a plan for your business. Many business owners are now well aware that planning is something that must take place all the time, not just once a year.
Setting targets and defining the steps you will take to achieve them is one of the most important decisions you can make. When you have a plan to track your finances throughout the year you have a reliable tool to evaluate your success.
Why are financial targets important?
Your financial targets allow you to monitor and adjust your business growth based on performance. You are more likely to achieve your business goals when you set and measure realistic financial targets. They can also be an important factor if you need to attract the attention of investors who will want to know how you are managing your business. By showing you are constantly reviewing and refining your approach you will demonstrate you and your business have potential for growth.
Five steps to set your financial targets
1. Evaluation – look at your financial goals for last year and this year. Did you achieve them? If not, do you know why not? If you did achieve them, with the benefit of hindsight, were they challenging enough or could you have been more ambitious? This information will help you to set realistic and rewarding targets for the future. Don’t forget that you can increase your profitability by reducing expenditure as well as increasing sales.
2. Definition – when you have set your financial targets look at them closely to understand exactly what they mean in terms of practical actions you must take to achieve them. The more specific you can be about what you must do and when will increase the likelihood of success. Assess whether there will be barriers or bottlenecks that could prevent you from achieving your targets and decide how you will remove or reduce their impact.
3. Analysis – each of your targets will be made up of a number of component parts. You can break them down into measurable steps so that they are easier to achieve. Taking one step at a time can make even the largest targets seem more manageable. The key to success is making each step measurable. For example, if you have set a target of increasing revenue by £100,000 in a year, you might set a quarterly target of £25,000, monthly targets of £8,400 and even weekly targets of £2,100.
4. Prioritise – your financial targets can be short- or long-term and some will be easier to achieve than others. Prioritising your targets will help you to allocate your resources and effort where they will make the most difference. Shorter-term targets might need very specific and immediate action, while your long-term targets might require a more strategic approach.
5. Measure – to be useful, your targets must be SMART. That is to say they should be specific so you will know exactly what you want to achieve. They should be measurable so that you will know when your targets have been met. To move you forward they must be achievable. They must also be relevant to the current size and scope of your business. You will also need to set deadlines, so they must be time-based too.
If you would like advice about setting financial targets for your business, please get in touch.
Tagged as: Accounting Software, Analysis, Automation, Balance sheet, Bookkeeper, Bookkeeping, Evaluations, Financial Projections, Financial Targets, Measure, Profit and loss
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