7 Financial Goals To Help Grow Your Small Business
By Matt Reims
If you’re a small business owner or entrepreneur, growing your business is likely a top priority. Small business growth typically requires diligence and attention across a variety of operational, creative, finance, and management functions. Among these many tasks, setting financial goals will be one of the most important steps you can take to achieve growth.
However you plan to grow your small business, whether it’s by hiring more employees, buying equipment, or increasing your marketing budget, finances will play a large part. Regardless of the stage that your business is in, setting financial goals is always a smart move. Here’s how to get started:
1. Have a General Understanding of Your Business’s Finances
If you’re going to grow your small business through revenue, you will need to know exactly where you stand financially. You can use a cloud accounting software that will track all your business’s financial transactions and keep everything up-to-date so you know exactly how much latitude you have in which to grow.
Many cloud accounting software reporting systems include financial reporting, which provides you with a high-level view of your business’s financial health at all times. The financial reports you’ll want to monitor are income, cash flow (the exchange of money between your business and the outside world over a period of time), and your balance sheet (your business’s assets and liabilities during a specific point in time).
Small business financial management essentials are discussed in more detail here.
2. Invest Your Excess Funds to Grow the Money
When setting your financial goals, you may not be considering the value of investing excess funds. Once you’ve started to make a profit, your financial obligations are met (bills, vendor payments, salaries, etc.), and you still have money left over, there are a number of things you could do with the extra funds. You could just sit on it for an emergency or give yourself a bonus, but to help establish small business growth, consider investing back into the company one way or another.
Here are a few ways you could invest your business’s extra money:
- Literally invest the money: Put your excess funds into a high-yield cash management account, a certificate of deposit (CD), or a mutual fund so it can earn a return.
- Invest in your employees: This could mean hiring new staff members to help expand your small business or putting the money into existing employees to improve retention. You could pay them a bonus for a job well done or use the money for employee development. Development options can include sending employees to training seminars or conferences.
- Business operations: If there’s equipment, technology, or support you’ve wanted to purchase for your small business but had to hold off on because of a lack of funds, this could be an appropriate time to make an investment. For example, if you find yourself handling multiple tasks, like managing social media and/or maintaining the company blog, outsource them. Or, if you see a piece of software that could help automate your processes, this may be a good time to make a purchase. The right technology and support can help lead to small business growth.
3. Keep Your Overhead Low
You may need to “spend money to make money,” but that does not mean you have to overspend it. If you’re going to grow through your finances, you’ll need to keep your overhead costs down.
Take a look around your office. What equipment is lying around unused that you could sell or donate for a tax write-off? If you have manpower, dedicate an employee to purchasing products and negotiate rates with your vendors to ensure you’re getting the best deal possible.
Real estate is one of the highest overhead costs you’ll encounter as a small business owner. Bring it down by trying to work out a better rent price with your landlord. Or, if your line of business allows for it, consider running a virtual office where everyone works remotely.
4. Don’t Overspend on Things You Don’t Need
There’s nothing wrong with spending money to achieve small business growth. Just be careful that the funds are being spent on items that have the potential to add to your bottom line. A surefire way to slow down company growth is wasteful spending. Treat every business purchase with consideration, similar to how you would manage your personal budget. When confronted with a purchase decision, ask yourself, “Do I need that item, or do I just really want it?” When you’re in the early stages of growing your small business, you likely don’t need the latest and greatest technology. You can always upgrade when you’re comfortably in the black.
Setting financial goals in business often requires trading off. Although it can be fun to make big purchases, just remember that your long-term goals require responsible financial oversight.
5. Keep an Emergency Savings Fund
An unexpected emergency could happen to any business, no matter how well run it is. In the event an emergency hits your company, it’s good to have money set aside to help keep your operation afloat. Examples of emergencies can include a sudden drop in consumer demand for your product or service, a downturn in the economy, getting bad press, or an unexpected increase in your operating costs.
How much money you should put away depends on the type of small business you operate. A good rule of thumb is to have at least three months’ worth of operating expenses. You’ll need to cover rent, insurance, payroll, etc. If you work in a high-risk business where your funds could take a hit at any time or you run a seasonal business like landscaping, you’ll want to put closer to six months’ worth of emergency funds away.
6. Understand Profit Margins and Learn to Maximize Them
Simply put, your small business's profit margins are the percentage of every dollar in sales you hold on to in earnings. So if your company has a 30 percent profit margin, you’re keeping $0.30 of every dollar of revenue you’ve earned.
A healthy profit margin means you’ll have more money available to expand and hopefully achieve small business growth. One way to increase your profit margins is to speed up your production process; the faster you deliver your goods or services, the lower your overhead cost per unit produced will be. See if there are steps you can cut (without sacrificing quality) to create a faster turnaround time.
Another option to increase profit margins is cross-selling. If your business sells more than one product, once you make a sale, ask your customers if they’d be interested in something else, whether it is an accessory or another copy of the product they just bought so they can give it to someone else.
Want to increase your company's profits?
7. Manage and Reduce Your Income Tax Costs
Now that you’re a small business owner, taxes should be one of your key points of focus. As long as you’re operating at a profit, you’re going to have to pay taxes. The key is to keep that number as low as possible.
You can reduce your tax bill by deducting business expenses. Common business deductions might include mileage and gas for traveling, rent for your office space, and, if you provide healthcare benefits to your staff, you can write that off, too. The IRS outlines business deductions here.
Make sure you track every business purchase you make so that you have them ready when it’s time to file your taxes. Crunched cloud accounting software can help you easily manage your business expenses. Just link the bank accounts and credit cards you use for business purchases to our software, and all of your transactions will be in one convenient spot.
Achieving small business growth sometimes takes a little luck, and it definitely requires persistence and diligent operational management. Setting financial goals is one of the most important operational tasks that you can focus on for growth. When you have a sound financial plan in place, you’ll put yourself in a much better position to succeed.
