Setting Achievable Business Goals for Small Business Owners

Running a small business can feel like navigating a ship in thick fog. You know where you want to go, but sometimes it’s hard to see the path. Setting clear goals is crucial for success, providing direction and focus for both the business owner and their bookkeeper. This post will guide you through various goal-setting methodologies and show how tools like Profitable Path and SME Clutch can help.

Why Goal Setting Matters

Direction

Without goals, you’re essentially navigating without a destination. Clear objectives provide a roadmap for growth.

Motivation

Seeing progress keeps you and your team motivated, fostering a sense of accomplishment.

Accountability

Goals create a framework for accountability, ensuring everyone is working towards the same targets.

Financial Health

Understanding your financial metrics through goals allows for better decision-making.

Goal Setting Methodologies

There are many ways to approach goal setting, and here are a few that are most relevant:

SMART Goals

This is a well-known framework where goals should be: 

• Specific: Clearly define what you want to achieve.

• Measurable: Quantify your goals with metrics.

• Achievable: Ensure your goals are realistic and attainable.

• Relevant: Make sure the goals align with your overall business objectives.

• Time-bound: Set deadlines for reaching your goals. 

OKR (Objectives and Key Results)

This methodology emphasizes setting a few major objectives (goals) with a similar number of key results (measures) that contribute to those objectives. This ensures a focus on what truly matters. For example, a business might have an objective of increasing revenue, with key results like increasing average invoice value or reducing debtor days.

The ABC Method

This simple method ensures your goals are: 

• Achievable: The goal must be something you can realistically achieve.

• Believable: You must have confidence in the goal.

• Committed: You must be fully committed to the goal. 

Huberman Lab Approach

Drawing on neuroscience and psychology, this method promotes setting moderately challenging goals and planning concrete action steps. It also advises you to think about what it would feel like to not reach the goal, to create a motivational state. This approach emphasizes the importance of avoiding failure, not just focusing on success.

Goal Setting in Action: Generic Business Example

Here’s how these methodologies might be applied in a generic business:

• SMART Goal Example: A small bakery might set a SMART goal to "Increase monthly online sales by 15% within the next quarter by running a targeted social media campaign". This is specific (online sales), measurable (15% increase), achievable (with a focused campaign), relevant (for business growth), and time-bound (within the next quarter).
• OKR Example: A consulting business could set the Objective to “Improve Client Satisfaction”. Key Results could include "Increase client retention rate from 70% to 80%" and "Achieve an average client satisfaction score of 4.5 out of 5 in feedback surveys".
• Lean Example: A small retail shop might use the Lean approach to review the performance of its products to ensure that they are focusing on the best selling ones and removing those that are under-performing.
• "Why" Example: A small business owner may reflect on why they started their business. They may remember that they wanted a better work-life balance and that may help them realise that a goal needs to be set to ensure that they are taking sufficient time off.
• Goal Difference Example: A cafe may have a goal to achieve a net profit of £5000, but after reviewing the accounts, they find they have only achieved £3000. The owner then focuses on how to improve their net profit by £2000 in order to reach the target.
• Best Practice Goal Example: A hospitality business may adopt best practice goals by focusing on Cost of Goods Sold (COGS). This is a leading goal within the industry that is directly related to profitability.
• Breaking Down Goals Example: A goal of increasing annual revenue by 20% is a good goal, but it is a big goal. To make it more manageable, the business owner might break it down into quarterly revenue targets, and monthly targets that need to be achieved.
• Regular Review Example: A small business owner might set a monthly meeting with their bookkeeper to review financial performance, and adjust their strategies as needed. 

Key Areas of Focus

For small businesses, focusing on three core areas is essential for success:

Profit

This is the money left over after all expenses are paid and it’s essential for long-term survival. Focus on metrics like gross profit margin and net profit margin.

Cash

This is the lifeblood of your business. Managing cash flow is crucial for daily operations. Track metrics such as cash received, cash spent, average debtor days, and average creditor days.

Growth

Growth is important for the long-term health of a business. Monitor metrics like income, number of invoices issued, and average value of invoices.

The Role of Bookkeepers

Bookkeepers play a vital role in helping small business owners achieve their financial goals. They can assist in:

Tracking Progress

Bookkeepers can use systems like SME Clutch to update financial data and generate monthly reports, enabling business owners to see how they're progressing against their targets.

Providing Insights

They can offer valuable insights into financial data, helping owners make informed decisions.

Ensuring Accuracy

Keeping accounts current helps avoid errors and fees, while allowing bookkeepers to offer financial insights.

How The Profitable Path and SME Clutch Can Help

The Profitable Path and SME Clutch are designed to help small businesses and their bookkeepers achieve more.

The Profitable Path is an online course for sole traders, self-employed individuals and small business owners who want to learn how to manage their finances, set financial goals, and achieve financial security.

SME Clutch is a tool that connects to your accounting software and pulls in the last 13 months of your data. It helps you set goals, track progress, and remain accountable by providing simple visualisations of your financial metrics. This is especially helpful for those who are not financially sophisticated.

• Both of these tools are designed to be user-friendly and simple, with clear visuals, and layman's terms. The emphasis is on providing the most important data in a way that is actionable by busy business owners.
• Bookkeepers can use SME Clutch to collaborate with their clients by having access to a shared platform that keeps everyone on the same page.