Well, it doesn’t necessarily take a lot of money to make a lot of money, but it does take some when it comes to business growth! Depending on the business model, market and the industry trend you may not even need money for growth, but you do need money for rapid startup growth growth.
Sales growth can take care of everything, but it’s not the solution in most of the cases. You need proper funding source for growth. It’s simple, you have to pay your vendors before your customers pay you and this cash flow conundrum forces fast-growing companies to seek bank financing or equity sales to finance their growth.
As a fact of the matter, a company can grow very fast with external funding than it can do at its own with sales revenue. So, if you are actually planning fast growth for your startup, you must set your financial goals!
This article will discuss the basic financial goals of a startup and how to set the same:
1- Profitability Goals: It’s the most basic financial goal of every business and involves earning more revenue than you spend on your operating expenses.
To set the profitability goals you must identify the revenue sources, i.e. sales, interest on investments, rental income etc. and project a specific number for each source. Next is to identify all the operating expenses, i.e. payroll, rent, materials, transportation, advertising, utilities, interest payments, licenses and taxes and mention the projected value for each.
Once you have the revenues and expenses projections, you can set some realistic goals (including increasing sales and decreasing expenses), which save money for expansion or capital reserves.
2- Cash Flow Goals: By a smooth cash flow we mean company’s ability to maintain enough operating capital to cover basic expenses. As there are seasonal fluctuations, delayed payments etc. that can affect the normal cash flow, it is important to set some goals to limit the off-season operations. Your cash flow goals must consider the emergency situation and so there should be a proper emergency funding plan in place.
3- Business Expansion Goals: Every business looks for growth which needs financing. Some businesses work on slow growth models while others want rapid growth which demands a good amount of funding. If you are looking to slow growth, you may use a small portion of sales revenue for growth, however, if a rapid growth is in your plan, you must seek the right financing for your startup. Here are some relevant readings that should help you set financial goals based on business expansion.
4- Specific Goals: Some businesses have some specific tangible objectives to improve operations, i.e. after leasing a space the entrepreneur learns that the building owner plans to eventually sell the building, so the business establishes the goal of buying it at some point of time. Such kind of goals that involve investment must have a proper ROI.
Related Reading: How to Set Achievable and Aggressive Goals for Your Startup
So, if you’re planning to take your business in the right direction which leads towards growth, setting your financial goals is a must. I hope the above points would have made it easy for you to set financial goals for your startup!