EOFY and It’s Time to Reset Your Business Goals
Taking the time to reset your business goals throughout the year can provide great value.
The old saying is that time flies when you’re having fun, but I think that needs to be upgraded to time flies when you’re running a business. Weeks fly by, then it’s months, and before you know it, we’re almost at the end of the financial year and halfway through the calendar year. Yikes.
While a new financial year is a great time to set goals and budgets for the next financial year, the key is not to set them and forget them. Goals and budgets need to reviewed and re-assessed throughout the year.
There’s nothing more discouraging than setting a lofty revenue goal at the beginning of the year, falling short of it on a monthly basis for the first few months and then feeling like a failure for the rest of the year.
Don’t do it. Instead, re-assess your goals, adjust them, downwards if you need to, so that you always have goals that feel achievable.
I was recently talking to a business owner about their goals for the business, and while they have some big targets, they’ve chunked it down into achievable goals in the short term while still aiming for the big targets in the longer term.
One of the owners said to me that she feels so much better now and that having a target that they achieve makes her feel much happier and positive about the future of the business. So taking the time to reset your business goals can be invaluable.
There are several ways of approaching goal-setting and budgeting for your business. My preferred method is:
1. Identify Your Personal Living Costs.
When you’re on a plane, they tell you to apply the oxygen mask to yourself first before you help others. So too you need to ensure you’re covering all your living costs from the business. Include everything in this list.
2. Determine the required net profit for the business.
Depending on your business structure, this will be a different calculation. But if you consider that your living costs need to be paid out of after-tax income, either look up the tax tables or ask your accountant or bookkeeper to help you calculate what your gross income needs to be to cover your living costs.
You need to add to this any loan repayments or other cash flow commitments to ensure you have the funds to pay those payments too.
If you reset your business goals, it may help to relieve a lot of pressure.
3. Review past year expenses and identify required costs for the upcoming year.
Historical information is a great starting point to identify your expected costs for the new financial year. While doing this review, consider if there are any costs you can eliminate and also think about your business plans for the year ahead and add in additional costs that may be required to fulfil those plans.
4. Review gross margin if applicable.
If you sell products review your gross margin and consider whether you can improve it, whether it will remain the same or whether it might be reduced
This also applies, if you sell services and are reporting the employment and contractor costs against revenue.
5. Calculate the required revenue.
Once you know your required gross income to cover your living costs, plus your expenses and your gross margin, it’s time to determine your required revenue.
Once you’ve followed these five steps, have a good hard look at the numbers. Check whether they make sense, is the revenue achievable and realistic and are there any other costs you may have missed. If the revenue level is less than you expect to do, that’s great, consider the revenue level you’ve calculated as your break-even figure. Then re-cast the figures with your higher revenue target to set your plan for the year.
Determining the monthly revenue goal can then be a tricky exercise. In every business I’ve seen there are at least two months of the year when business is tough, whether that’s a couple of the winter months or December/January.
Sometimes it’s end of financial year with money either being spent before the end of the year and then a period early in the new year without much, or reduced income in the lead up to end of financial year and then a flurry of sales early in the new year as the next years’ funding becomes available.
Once you’ve identified which are your quieter months and how many they are, divide your goal revenue by the number of good months you usually have and set that as your monthly target then if you meet those targets, you won’t need to stress out during the quieter months.
The new financial year is an opportunity to reset your business goals, set new financial objectives but remember to change them through the year if your results are different, and that includes increasing the goal if you’re smashing it.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
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