As a practitioner who has worked in the accounting industry for nearly 25 years, there have been numerous changes that I and indeed, the industry have seen over that time. One area that has not changed is that planning is the key to success, or as the saying goes, failing to prepare is preparing to fail. In this article, I will be outlining setting business plan goals and objectives.
One of the most important parts of running a business, especially in the SME sector, is having a business plan, setting objectives and putting budgets and forecasts in place to monitor how the business is performing in comparison to those objectives and forecasts that have been set.
Technology available to us now through cloud accounting software allows us to obtain real time information and use it to drill down behind the numbers, prepare ratio analysis, review sales trends, the list is endless. Most of the software is relatively cheap and the benefits that can be gained from setting it up properly and putting in the time and effort up front to so will provide you with valuable information at the press of a button. The question is, why wouldn’t you make use of the tools that are available?
Setting objectives varies from business to business, that said, in most businesses there will a number of key drivers which will be relevant as follows:
- Sales targets – different type, value etc.
- Gross margin – can vary per product/service.
- Cash targets – how much should I have in the bank at the end of each period?
- Business referrals – set a target how many referrals from each source of business you would like.
- Key clients won / retained – set a target for the number of new clients you would like on a month by month basis.
- Clients lost and why they left – interview clients when they leave to give invaluable feedback.
Breakdown the targets into monthly and quarterly reviews, monitoring key data that may affect the end results. There are a number of boards that you can set up to provide graphical representations to the data easier to present and understand, you can use software, such as Futrli, to link to your accounting software and produce the data almost instantly.
Monitoring the results
The key to having targets in place is to ensure that you monitor them against actual results and gain an understanding of the reasons behind any variances. Without spending the time to review and obtain explanations, the process is much less effective.
Treat the targets and objectives as a self-motivator. SMEs often don’t have a board or reporting structure in place so having a process of self-review can often replace that. You should always be asking yourselves why you are not hitting objectives, for example, why have you only won 2 new clients this month when the target was 4? Am I asking existing clients for referrals and if so why I am I not receiving them? Am I not providing a good enough service to the existing clients for them to consider referring me? Whichever objective you are looking at, there is always room for improvement.
When you are setting objectives, be realistic with them. If you set targets that are too steep, that may also act as a a demotivator if you never hit them. You should aim for steady growth within the business and build a business that will last, if you push too far too fast, the likelihood is that you will end up stretching your cash resources and then if something goes wrong, you will end up in financial difficulties.
Objective setting is not an exact science so learn as you go along. If you are constantly failing to reach your targets and once you have spent the time reviewing them, you don’t believe it is for any reason for that apart from the targets being too stringent in the first please, then scale them back a bit. The same goes the other way.
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