Short-term financial strategies and long-term investment planning are critical to achieving your small business’s economic objectives. Melding the two together requires strategic financial management of your short-term and long-term liabilities and assets using financial goal setting. In this article, we’ll show you how to do that.
What you need to know
- Performance against short-term goals can impact the way you approach your long-term
goals. The two should be integrated to measure your success. - Your budget is a cash flow management tool. You can use it to project and/or track resource allocation for business activities.
- Financial reporting is a valuable tool for monitoring your business. The balance sheet, income statement, and cash flow statement are compiled quarterly, giving insight into whether your short-term goals are being met.
Understanding financial goals
Short-term financial goals are milestones you want to achieve within one year. Some common examples of this could be acquiring a certain number of new customers, hitting a specific sales goal, or completing an expansion. Proper business budgeting techniques give you the confidence and resources to fulfill those goals, while commitment and hard work should do the rest.
Long-term financial goals are milestones with timelines of one to several years. Achieving those goals requires careful financial decision-making and capital growth planning that tracks ROI. Improving your business financial health is a long-term goal, as is exiting from the business via retirement or acquisition.
Performance against short-term goals can impact the way you approach your long-term goals. For instance, if you miss a short-term goal to reach $1 million in sales by mid-year, consider adjusting business plans, including your long-term goals, to reflect your actual growth.
The role of budgeting in the short and long-term
Effective budgeting and financial performance monitoring help achieve both types of financial goals. Adjusting your budget with profit maximization strategies will improve your KPIs when scaling your business. Allocating funds for green upgrades and sustainable business practices can ensure your company is still in business to achieve those long-term goals.
Your budget is a cash flow management tool. You can use it to project and/or track resource allocation for business functions within the company. Those numbers will evolve as economic circumstances change, so be prepared to adapt your budget quarterly or annually. Your goals are business financial tools that can help you make those decisions.
Budgeting is a small business financial literacy topic that should be taught to your entire team. Managers and employees are more likely to help you stay on or under budget if they understand how and why you came up with those numbers. Add the cost of that training to your budget and make it an annual part of your business financial planning.
Prioritizing financial goals for your business
Achieving your financial goals sometimes requires resources that your company doesn’t have. We’ve all had days when the funds in the business checking account don’t cover the stack of bills on our desk. You don’t want to abandon your goals when that happens, but you may need to prioritize them. The goals that take precedence will depend on the nature of your business.
Imagine a scenario where you set a short-term goal of $1 million in sales by the end of the second quarter, but your revenue in the first quarter only covered a COGS (cost of goods sold) for $250,000 in sales. The math shows you can’t hit your Q2 sales goal. Do you adjust or take on new debt to cover materials and marketing costs? That’s prioritizing.
Expand that scenario to include a long-term goal of purchasing a new building. That purchase has a price tag; you must hit several short-term revenue goals to pay for it. Missing the mark on any of them could delay the purchase. Bringing in more revenue than you projected could accelerate it. You should have contingency plans for each of these.
Integrating short-term and long-term business plans
As we talked about above, your short-term financial strategies need to support your long-term objectives. Each quarterly revenue target hit is a building block in your business’s foundation. A strong foundation where short-term goals are consistently met will lead to a bright future for your business. Missed or unrealistic short-term goals could put that future in jeopardy.
There are several ways to approach this, including budgeting and expense management. Increasing your revenue streams is more complicated and usually requires an investment, as you need to spend money to make money. The key to succeeding at that is spending less than you bring in.
Avoid the common pitfalls that can derail long-term financial health for immediate gains. A good example is borrowing money to boost sales to hit a short-term revenue goal. Debt needs to be repaid. Your current quarter might look good, but future goals may be unattainable when the bill comes due. There are better ways to increase your revenue.
Monitoring and adjusting your financial goals
Financial planning software for businesses can help you track your financial goals, while a financial planner or advisor can help with budgeting, investments, and revenue tracking. Having tools to manage both short-term goals and long-term plans will help make things easier.
Ships sailing across the ocean can miss their destination by hundreds of miles if they go off course just a few degrees early in their voyage. Business works the same way. The short-term milestones you set up are there to ensure you stay on course. When you’re off, you need to course-correct. Detecting that early makes it easier to adjust.
Financial reporting is another valuable tool for monitoring your business’s financial goals. The balance sheet, income statement, and cash flow statement are compiled quarterly, giving insight into whether your short-term goals are being met. They can show you where you’re falling short and what you must do to get back on track. The numbers are all there, if you know how to read them.
Conclusion
Progress cannot be measured without goals. In business, there are short-term goals for financial targets within one year and long-term goals for your company’s sustained financial health and solvency. These goals should be integrated to allow your company to adjust its budget, revenue, or cash flow when needed.
Be open to change when your company lacks the resources to achieve your short-term financial goals. Your goals may need to be adjusted to reflect the economic reality of your situation. When you do that, modify your long-term goals to reflect those changes. You may need to do this several times to keep your corporate ship sailing smoothly.
Finally, use your business financial reports to check on your goals. The balance sheet shows your current assets and liabilities, the income statement breaks down your costs, and the cash flow statement allocates revenue. Inputting these into financial planning software should give
Get the business checking account that supports your short- and long-term goals.
