Money can be one of the most complex topics to tackle as a small business owner. We often have so much emotion tied to the money our business makes — or doesn’t make. The reality is that it is tough to build a financially sustainable business.
The majority of entrepreneurs want to grow their businesses, but very few have actual growth goals. When asked about it, most small business owners usually answer, “I want to hit a million dollars,” or, “I want to grow by 10%.” These are not real goals; they are vague wishes, thoughts, and dreams.
You can get an edge over your competition by stepping back and figuring out exactly where you want to take your business. Identify clear, achievable, realistic, and action-oriented goals by following simple guidelines.
Before we get into those best practices, let’s talk about why generating revenue is the best influx of capital for your business. While we often speak of equity or debt as ways to inject capital into a business, there is no better capital injection than revenue. As a small business, your time and energy should be primarily focused on creating solid revenue streams. Carissa Reiniger, Silver Lining Founder & CEO, explores ways to get creative and stay focused on generating revenue, even in the midst of a global pandemic.
Now let’s talk about setting financial goals so you have a fighting chance of hitting them! You can get an edge over your competition by stepping back to figure out exactly where you want to take your business. Here are some quick and simple guidelines to get you started:
1. Make sure your goals are somewhere between aggressive and realistic.
Remember that once you set a goal, the point is to hit it. Many times people set completely unrealistic goals or set goals that are way too easy to hit. The trick to setting goals is to make them just hard enough that you are motivated, but not so hard that you give up before you even start.
2. Understand your expenses first.
Most small business owners do not fully understand their expenses and their impact on revenue. They are only thinking in terms of revenue, and more often than not, they judge their success based on increasing revenue. However, if you don’t understand your expenses, you can’t truly understand your numbers or set goals. Often, when revenue goes up, so do costs, which means you don’t make any more money. Keep in mind that all revenue is not good revenue. If new revenue means you need to incur more costs, you might want to look at your expenses and figure out ways to increase your profit margin. Some new business opportunities can actually end up with you losing money.
3. Tell the truth.
This one seems obvious, but make sure the numbers you use to set your goals are accurate. Often, small business owners aren’t prepared to look at their current reality and be 100% honest with themselves. Going deeper into your financials may not always end up being good news, and you may uncover some unpleasant surprises, but the truth will set you free! When you have a clear picture of what’s working and what isn’t, you can figure out a path forward. Dealing with issues head-on, understanding precisely what is happening, and responding accordingly is the mature response to a real-life situation. It’s the one that will help you hit your goals, too.
4. Keep emotions out of it.
Ninety-five percent of running a business is about entrepreneurial passion, motivation, inspiration, blind faith, and a flurry of other emotions that keep us all going through both good and bad times. However, emotions don’t have a place when defining your business goals. The feelings of hope, fear, anxiety, and belief can really skew your numbers — for better and worse. The beautiful thing about numbers is that they tell you precisely what is happening. Being logical and practical isn’t everything when trying to grow your business, but you must let it guide your decision-making. Listen to the numbers; they give you incredible insight into your business.
Let us know in the comments below what you are doing right now when it comes to making more money, growing it, spending it, and managing it!
Next Steps: Want to learn more? Sign up for the Small Biz Ahead newsletter to receive a weekly roundup of the latest tools, trends, and resources.