Setting Financial Goals That Drive Results
Most of us dream of big success for our business and while BHAGs (“big hairy audacious goals”) are great to have, it’s also important to set realistic financial goals that you can use to manage your team and operations on your way to achieving that ultimate goal. Easier said than done, we know. But smart (and SMART!) goal-setting can make a huge difference in your team’s ability to execute and, ultimately, make the really big things happen. Even big, hairy, audacious things. Read this comprehensive article to get some goal-setting tips we’ve learned from experience.
Collaboration and Buy-In Are Key
No matter how big or small your company is, it’s important that everyone be on board. There’s no better way to get key people involved and enthusiastic than to involve them in setting goals. So when you’re setting goals for the company, get the key players together—typically executives and maybe department heads—and brainstorm together. Think about where you want to get to ultimately and then start breaking that down into smaller goals with near-term timelines. Make sure everyone involved understands how their role contributes to achieving goals. And if you have multiple departments to coordinate, make sure you engage your managers early in this process so they can distill the information and present it to their own teams and get their buy-in too.
Be SMART in Your Goal-Setting
Use SMART goals to help break things down into clear objectives. SMART goals, as you may know, are objectives that are Specific, Measurable, Achievable, Relevant, and Timely. The correlation between effective goal setting and goal success has been proven time and time again, and your financial goals are no exception. Taking the time to make sure your goals really are SMART is time well-spent, if you want your goals to actually drive action and decision-making.
It’s worth noting that goals that don’t hit the SMART standard aren’t necessarily bad ideas; it may mean that the goal needs to be refined before it meets that standard. Don’t reject a goal just because it’s not SMART. Instead, dig in on it. Consider this example:
- “Increase our profit margin” is a great goal, but it’s pretty vague. Is any increase a success?
- “Increase our quarterly profit margin by two percent” is much better because it’s more specific, establishing a timeframe and quantifiable outcome.
- “Increase our quarterly profit margin by two percent over the next six months through our new manufacturing methodology” is an even better goal that outlines a timetable, objective measure of success, and specific strategy for fulfillment.
The third point—achievability—is key here. Financial milestones must be aligned with what operating managers can realistically achieve; otherwise, you’re inviting people to ignore goal-setting as one of those waste-of-time exercises every company goes through but which don’t really matter. With realistic goals in place, consider aligning employee compensation with these financial milestones via your incentive system. By giving each employee a tangible reward for contributing towards a business-wide goal, you’re providing external motivation while making clear their contributions to the company. (Of course, in order to do that, you’re also forcing yourself to make sure your goals are also specific and measurable — a bonus!)
Measure Your Progress & Trust Your Indicators
As you work towards your goals, use a scorecard or dashboard to monitor your leading performance indicators. You can use this data alongside predictive analytics to gain insight into future performance so you can make adjustments quickly. For example, predictive analytics applied to sales revenue produce sales forecasts based around the ebbs and flows of trends rather than arbitrary budgets.
Another example: expense budgets are useful for structuring financial goals, but these reports are preliminary and depend on actual sales results. If sales exceed expectations, you may have to invest in additional resources to support new business. If sales come up short, you’ll need to reduce spending in other areas to keep your business profitable. Indicator dashboards provide this type of data to support smarter decision-making, particularly for financial goals.
Structure Will Keep You Moving
Above all, keep in mind that structure and discipline are key to success in setting and achieving financial goals. Do the work to set SMART goals and track progress on a regular basis. If your leading indicators suggest you’re off track, dive in and see if you can determine why and how to adjust. And remember, be reasonable: Small stones make big ripples, and even small financial milestones can add up fast.
If you’re looking for help setting financial goals for your organization, contact us today.