As a business owner, you may feel that your business runs you rather than you run your business. You want to change your approach so that things are different in the future. Setting a specific goal and making a plan to achieve that goal can make it so things will be different in the future.
In order to achieve a goal you need to:
Be specific
Review your past performance
Create a realistic plan
Monitor your progress and adjust if necessary
We will walk you through how to get started and provide an example that shows how to put these steps into practice.
Identify a specific goal
Having a specific goal involves thinking about the future of your business. To define your goals, start by asking yourself these questions:
- Do you want to purchase a new piece of equipment?
- Do you want to save money so you can pay your estimated taxes throughout the year?
Some goals may start out as a vague idea that requires some narrowing down. For instance, if your goal is to expand your business, you could make the goal more specific by considering these questions:
- What specifically do you want to expand?
- Do you want to hire more employees?
- Or do you want to be able to have a larger salary for yourself?
- Or something else?
The more specific the goal, the more likely you are to achieve it.
Review your past performance
Knowledge is power. Reviewing your past business performance can help you to be better equipped to reach your goal. You know that you should be looking at your reports, but you are not sure what to look for. Think of the numbers in your reports as the means to identify the truth about your business.
Most business owners feel most comfortable reviewing their Profit & Loss reports. In reviewing your Profit & Loss reports, take note of two areas of performance to review – your revenue and expenses.
Ask yourself the following questions when reviewing your revenue:
- Are there specific months when my revenue is higher than the average?
- Are there other months when my revenue is lower than the average?
- Do these trends appear in multiple years?
- If not, was there a specific anomaly that may have contributed to these trends?
Similarly, ask yourself the following questions when reviewing your expenses:
- Are there specific months when certain expenses are higher than others?
- Are these same trends consistent in multiple years?
- What factors might be causing the higher expenses?
- Were there any out-of-the-ordinary expenses during the period of analysis?
Asking these questions can help you to identify your trends and your business’ cycles. Every business is unique. This means that your trends and business cycles may be different from someone else. Knowing your business trends and cycles will help you in planning to reach your goal.
Create a realistic plan to reach your goal
You need to create a realistic plan to reach your goal. If your plan is unrealistic, you probably will not be able to attain it. You want to set yourself up for success.
Here’s an example of how you might go about creating a realistic plan:
Let’s say you are a general contractor. You have been in business a number of years and you make a decent profit. You want to purchase a dump truck in the next 12 months. You have done the research and determined that you would like to purchase a used dump truck and it will cost $24,000.
Your goal is to save $24,000 over the next 12 months.
You wonder if saving $2,000 a month over the next 12 months would help you achieve your goal. At first glance, this might seem like a good plan.
Then you look at your current year and previous years’ Profit & Loss reports. When doing a review of the reports, you notice that your revenue decreases in the months of December through March every year. Additionally, your revenue just barely meets your expenses for those same months.
Your analysis leads you to ask yourself: Is the plan of saving $2,000 a month for 12 months realistic? Based on the review of your past performance, you realize there are four months in the year that you do not have excess funds to tap into. What can you do? You decide to adjust your plan.
Your adjusted plan is to save $3,000 for 8 months.
Your adjusted plan is to save $3,000 a month for the months of April through November (8 months). In the end, you will still save the same amount, $24,000. The adjusted plan is much more realistic and has a much better chance of success.
Monitor your progress and adjust if necessary
Having a specific goal and a realistic plan is great. But you also need to monitor your progress. This will allow you to stay on track to reach your goal and alert you if you need to adjust your plan.
Let’s go back to our earlier example to see what progress you have made in reaching your goal and to determine if any adjustments are needed.
For the months of April through August (5 months) you have been able to save the planned $3,000 per month, for a total saved through August of $15,000. However, in September your business experienced an unexpected delay on a project that led to a decrease in revenue. As a result, you were only able to save $1,000 towards your savings goal.
This means that at the end of September you only have $16,000 towards your goal. What can you do?
You could adjust your savings plan for October and November to $4,000 each to reach your goal. But then you ask yourself, is this realistic? You decide that it is not.
You believe that you will be able to return to your plan to save $3,000 per month for October and November. Also, your delayed project is expected to be completed in December. This means that you expect to have additional funds available in that month. You decide to adjust your plan to save $2,000 in December. Thus you can still reach your goal within the time frame you originally planned.
As in our example above, you may need to adjust the timeline or other components of your goal. Even if it ends up taking a bit longer than you originally planned, reaching your goal successfully is a wonderful thing!
Cash flow is a critical element in determining if your goals are realistic and can help you determine if you need to adjust your goal. Download our guide Three Steps to Control your Cash to help you get started with your cash flow planning.