There is a common saying that goes by “failure to plan is planning to fail.” Financial planning in a small business is essential since the firm must sustain itself fiscally to continue operating. Financial goals in a small business are characterized by reaching a certain objective such as saving to expand the business or to buy specific equipment. Whether you want to increase profit margins or save, your goals bust be clear and have a timeline.
Although people think goals should only be set at the beginning of the year, it is prudent to reevaluate your goals multiples times in a year. This will help you track your progress and refine your goals to fit the ever-changing business environment.
Micro and Macro Goals
A business must distinguish between micro and macro goals. This will enable the employees to have a clear idea of what they should achieve at a specific timeline. Financial goals should be divided into micro and macro goals. Micro are short term goals while macro are long term financial objectives that a firm aspires to achieve. The business should have both a micro and macro view on how to increase margins, increase revenues, and reduce operational costs.
On top of that, a business should have a mission and vision statement. It’s okay for the statements to be generic, but they should have a significant bearing on financial management.
Here are the financial goals you should consider in 2020.
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Improve Margins
The main goal of business finance is to reduce operating costs and increase profit margins. Increasing your margins is not a one-day activity, but it is a continuous process. There are several ways of increasing your profit margins. You can raise the unit price of goods and services. However, this strategy is not favorable, especially in a sensitive market. It is recommendable to consider other avenues of increasing profit margins. The most preferred channel is lowering operations costs. Costs can be reduced by increasing production volume to enjoy economies of scale or by negotiating new deals with suppliers. A small business may also cut costs by considering a cheaper but effective marketing and advertising technique. Besides, you can reduce salaries and expenses. Reducing expenses does not necessarily mean reducing your employees’ pay. This can be done by considering flexible hiring, where you employ your staff as consultants.
Control Cashflows
This is one of the essential goals of business finance. In layman’s terms, cash flow is the amount of money getting into your business as revenue and leaving as payments. A savvy business person will ensure that the amount of money leaving the business is lower than what is getting in. In such an event, the business is said to have positive cashflow. In managing cash flow, a business person should pay attention to things such as paying suppliers, managing inventory, employee compensation, among others. Even in startups, inventory management should not be overlooked.
Management Debt
Business people should know that financing a business with a loan isn’t a bad thing. Furthermore, individuals borrow too, why not a business. However, you should consider the terms and conditions of repaying the money. If the interest of the loan is way too high than the outcome benefit of the debt, then that should be a no-go zone. Work on reducing your debt to improve your credit score. Also, prioritize borrowing from lenders who charge lower interest rates. You can go further and meet with a financial institution to discuss more favorable terms.
Cut Costs
Every business is in control of its costs. When the operating expenses surpass revenues, you are not in business. In such an instance, a business is said to be burning money. Not even a single business person would like to burn money. But if the cash flows are not controlled, then the business might find itself making losses. If your business is experiencing losses, decrease operating expenses. This can be done by shunning away from unproductive practices such as high headcount, renting unutilized space, and high shipping costs, among others. A business person should keep on revising costs so that as the cost of factors of production change, the business does not experience pressure. In 2020 you should prioritize increasing your profit margins. Make sure that money is always flowing in your business. The amount of money getting in should exceed the amount of money leaving your business.
