Goals are an important part of any financial plan. After all, it is very difficult to draw up any plan without having any idea of where you want to go, whether in the short, medium or long term.
However, it is not easy to establish these objectives, especially in such a way that they are tangible so as not to distort the purpose of your planning. That’s why we’ve separated some tips on how to set good goals. Continue reading and find out more John Labunski!
How important is setting financial goals?
To be clear, a financial goal consists of an objective stipulated within a plan so that such a level of performance is reached within a certain period. An example for a company would be to reduce costs by 10% over the year or increase revenues by 5% in the next semester.
In the time variable, a financial target focuses on the short, medium and/or long term, even if there is no consensus on how many months or years make up these periods. However, in general it works like this:
- short-term goals: less than 1 year;
- medium-term goals: between 1 and 2 years; and
- Long-term goals: any period that exceeds 2 years.
It’s important not to confuse goal setting with random numbers thrown into a spreadsheet. Such an attitude only tends to mess up all the proposed planning, harming the company’s financial organization and preventing it from growing.
In addition, setting goals is an excellent way to learn how to turn ideas and desires into actions. The absence of a fixed point at which strategies should be targeted also prevents the evolution of what has been implemented from being monitored, observing whether the results are as expected or whether adjustments in the path are necessary.
Another important point is that the existence of goals also avoids financial lack of control, helping to balance all company accounts. This, in the long term, guarantees the stability and continuity of the enterprise, especially in times of economic uncertainty, volatility and market turmoil.
Finally, good financial planning, with clear goals, prevents unnecessary investments from being made, with little chance of thriving. In most cases, such strategies represent a risk not worth taking, putting the financial health of the business at risk.
How to set good financial goals?
Setting good financial goals is not something that will happen overnight. Therefore, in the next topics, we indicate the steps that must be taken to outline your plans accurately and efficiently.
Have a financial plan
The first step in drawing up a financial plan and then setting out your goals involves making an accurate diagnosis of the current situation of the business. It is only based on this panorama that it will be possible to base the plan on realistic pillars. For this, it is important to closely monitor the situation of some indicators. Among the main ones are:
- bills to pay and receive;
- stock levels;
- available cash balance;
- cash flow situation;
- Outstanding debts and financing.
Discover the SMART methodology
One of the best known and most used strategies for establishing effective goals is the SMART methodology, an acronym in which each letter represents a characteristic that must be present in your goals. According to this technique, they should always be:
- Specific: The goal must have focus. It is not enough to want to sell more; it is necessary to know what you want to sell more and how much this increase will be;
- Measurable: only focus is not enough, the goal needs to be accompanied by parameters and indicators. In this way, any evaluation of its evolution must be based on numbers and not on guesswork;
- Attainable (Achievable): dreaming is good, but this is not always the case. The goals need to be consistent with the current context and take into account the particularities of the business, such as seasonality. Remember that unattainable goals undermine team motivation and jeopardize the solidity of planning;
- Relevant: The goal must also make sense for the purpose of the company and be realistic with the industry. Furthermore, the proposed objectives cannot be just a pretty number within the spreadsheet, but actually represent some effective gain for the business;
- Timely: Finally, the goal needs to have chronological intervals in order to reach the estimated goals. It’s no use putting “increase future earnings”. You need to specify the time frame, as in “increase earnings by 10% over the same period last year”.
Monitor the results
As we have already highlighted, every goal should be closely monitored after it is set. This only reinforces the importance of always being measurable, as proposed by the SMART methodology.
To carry out this follow-up, it is important to define which indicators will be used to make the comparisons. In this way, it will be possible to evaluate in detail the evolution obtained, as well as propose adjustments, reformulations and everything necessary for the situation to remain as expected.
Work with alternate scenarios
Despite all the effort, things don’t always go according to plan. Therefore, it is always important to work with alternative scenarios in relation to those initially proposed. Therefore, it is necessary to maintain some flexibility, especially in the face of unforeseen events to which all projects are subject.
Within this ability to adapt to new scenarios, considering hypotheses in which everything turns out much better than expected and others in which things turn out worse than initially projected is a very relevant practice, since such care allows us to fit different situations within of the business budget, without losing opportunities or compromising cash.
Taking all this into account, it will be easier to conduct financial planning with financial goals that are aligned with parameters that allow your company to develop in a sustainable way.
Did you like this post? Do you work with small teams? So, here’s how to set smart goals in this context John Labunski Investment Finder.