What are the main business Goals?

What are the main Business Goals ?

                                             
                                                                                                                                                                                              Image Source- www.experfy.com                   

 

“We all need lots of powerful long-range goals to help us pass the short-term obstacles"

As they say goals are long term, that could be one’s dream. But we must work on that dream to achieve that dream one day. Same principle applies to your business. You may have started small but some day you want your business to grow big. That’s the dream of every entrepreneur. The problem is how would you reach there? You will have to face many short-term obstacles in achieving that business goal.

Business Goals are the goals that your business expects  to accomplish during a specific time period. Business goals can be general, as well as specific to your departments, employees, customer related..etc. Business goals are long term outcomes that your business wishes to accomplish,

What are objectives and what’s the relationship between a goal and an objective?

Objectives could be defined as course of actions that requires to reach the goal. If your goal is to become the most successful businessman in your town among your competitors, so you decide to maximize your profit every year (your objective). So now you know that you must pay more attention on the objectives of your business. Is your business on the correct path?

In this section we identify Objectives of your business. Profit maximization is often assumed to be the most objective of a business. But are you still happy if you have more profits?

Are other objectives therefore also important?

Yes. You can earn profits in many ways, but will you survive in the long term? Because your business goal is to grow a value to your business called as wealth maximization. What is this?

Conflict between profit and maximization of owner’s wealth

Assume you have a plant which is used to manufacture the products you sell. You meet a buyer who is willing to pay a good sum of money to that plant which is profitable to you. If you sell the machinery your short-term target is achieved with a good profit however, the income which could be generated over the period from the machinery is no longer there to the company.

As you can see just because you make profits does not mean that you are maximizing owners’ wealth through that decision. So we need to make decisions in balanced way.

Strategic financial management is ‘the recognizable proof of the conceivable strategies capable of expanding an business’s net present value, the assignment of scarce capital resources among the competing openings and the execution and monitoring of the chosen procedure so as to attain expressed objectives.

Therefore, the primary objective is to maximize the shareholder’s wealth & it could be a long-term business goal. In order to achieve a long-term growth, increase the value of the business or owner’s wealth, there can be short term objectives as well. Those can be expressed as targets.

So as mentioned in the introduction maximizing profit is mere a short term phenomenal, whereas there are other objectives and targets that will lead to maximize the overall wealth of the owners

So, it is much important to balance these objectives and always analyses the impact on the owner’s wealth maximization due to the decisions we take

Strategy depends on expressed objectives or targets. Therefore, an obvious starting point is the identification and formulation of these objectives. Strategy could be a course of activity, counting the determination of resources required, to achieve an objective.

Setting Goals

Characteristics of Goals

First step of setting a goal or objective is to identify its nature and characteristics.

Identifying a Goal through SMART criteria is much easier as its considered as most recognized method for structure and evaluate your goals. SMART goals take broad or vague goals and turn them into small goals which could be executed by someone easily. Each letter has its own meaning as shown in the picture.

We must turn this method into business goals and use them as a key to our success.

Let’s take a Goal

This is Martin and he has started his own toy manufacturing business recently he was thinking what he is going to achieve.

Lets see how he is going to set his smart goal by looking at each criteria.

S-Specific

SMART begins with asking yourself to which degree your business goal is specific. Well, this is arguably most important part of establishing your value in your business goal. The less specific a goal more difficult it is to determine how long the business goal should take to complete or how to measure success. Here the Martin has specified his goal and he is going to “Increase Net Asset by 1 Million” . which seems to be more specific. Rather than having an overall idea, its clear we have to be more precise when setting goals.

M- Measurable

The next question How is your goal measured? What determines success? Some goals are measured by a simple Yes or No, where other goals are measured by different matrics such as Currency, Length, weight. Etc. The key is whatever the measure you choose it accurately reflects your business goal.

Here Martin is planning to increase his net worth so he has taken currency matric to measure. Currency is the best measure in this situation. If you cannot measure a matric search for alternative measures that would indicate the same fact.

A- Attainable

This is very important.! How are you going to achieve your Business goal? What is our action plan to achieve this goal? Do we have the adequate resources? Where are we lacking? all points have to be addressed in your business goal. Well-designed goals provide clarity of actions. If the actions are not clear or there are large number of actions have to be taken we could break It down to small manageable sub-goals.

Back to Martins case,

He has mentioned that he has sub-divided his main target into pieces, he is planning to achieve a quarterly profit of 200,000 USD and plans to by a plant in next 6 months’ time. He is very clear in his sub-goals, but he is lacking in one area that is his debtors are not settling dues. So he may need to take corrective actions on that as well. So his goal is attainable

R- Relevant

Your business goal should be relevant and achievable. Common issue we have is pursuing too many business goals at the same time or pursuing the wrong goals. We need a mechanism to monitor whether we are pursuing relevant sub goals. One popular mechanism is more output with less efforts for example- follow 80/20 rule, this means what are the 20% of goals which will contribute to achieve 80% of my return. This means we should focus on low energy & high valued goals, and those are said to be more relevant

 Here in Martin’s case we can see that he is more relevant in achieving his goals he has selected the most critical sub goals (Increasing profit and increasing his asset base, efficiency and debtor management). Which means he has selected relevant goals to follow.

T- Time Based

Last thing we want to make sure in our business goal is whether it’s time based or not, We have to include specific time period so it helps us to monitor the progress of our goal.

Here Martin said that he wants to increase the net assets by 1 Mn at the end of next year which is more precise. Further he said that to support that he has set another sub goal of achieving quarterly profit of 200,000 USD. So after 3 months he can re-visit his goals and see the progress. If not achieved he can amend the things in advance so his ultimate goal is not affected. So don’t wait till the last moment.

Factors to consider when setting business goals

By following these simple facts, we could set business goals in advance. Well if your business is in the growth stage and your financial structure is more complex you have to add various parameters to see your success. Further when making decisions we cant only think of ourselves there are lot of people waiting inside and outside who are concerned about our business. In business context these people are known as Stakeholders.

Stakeholders of Business

ImageSource- www.productcoalition.com

For example as owners you need more profits but if you take all the profits you earn, your employees will not be properly rewarded for what they do to your business. Therefore you need to motivate them always and reward properly for there task.

Futher if you going to increase profits you can either increase your prices or reduce your costs. But how your customers will react to this, since high prices will cause reduction in demand. Or if they find your products are inferior sometimes, they might shift to another product

If you are paying taxes for government they will implement more taxes if your turnover is growing so you would have to pay more taxes which will deteriorate your profitability of the company.

Like wise you just cant focus on your growth we have to analyse our stakeholders and prioritize them in order of preference. And what is the impact they can cause to our business.

How a grown company maximize wealth?

A company is financed by ordinary shareholders, favored shareholders, bond holders and other long-term and short-term payables. All surplus funds, however, belong to the lawful owners of the company, its standard shareholders. Any retained profits are undistributed wealth of these equity shareholders. wealth, when a peer comparison of a recorded related substance would be used for valuation.

In the event that a company’s shares are exchanged on a stock exchange, the riches of shareholders is expanded when the share price goes up. The cost of a company’s shares should go up when the company is expected to form extra benefits, which it will pay out as profits or re-invest within the business to realize future profit growth and profit growth.

However, to extend the share cost, the company should achieve its profits without taking over the top business risks and financial risks that worry shareholders.  

Financial targets

On the off chance that there’s an increment in earnings and dividends, management can hope for an increase within the share price as well, so that shareholders advantage from both higher revenue (dividends) and also capital gains (higher share prices).

Management should set finance related targets for factors which they can influence directly, such as     cash flows, profits and profit development.

Examples of financial targets

 

Increasing earnings per share

(EPS)

EPS should increment by 8% per annum.

Borrowing levels

Ratio of debt : value should not exceed 1:1 or finance costs should not be higher than 35% of profit from operations.

Profit retention

Profit cover (benefit for the year/dividends) should exceed 3.5

Profit from operations

Target profit from operations: income ratio or minimum return on capital employed.

These finance related targets are not essential targets, but they can act as subsidiary targets or limitations that ought to offer assistance a company to attain its main financial objective without causing excessive risks.

Non-financial targets

Non-financial objectives such as quality measures, development measures and customer-based measures can moreover be important for a profit-making entity. A company’s non-financial targets may include the taking after.

Non-financial objectives

 

Customer satisfaction

A key target, since of the adverse financial consequences on the off chance that businesses switch suppliers

Welfare of employees

Competitive wages and salaries, comfortable and safe working conditions, good training and career development

Welfare of management

High pay rates, company cars and advantages

Welfareof society

Concern for the environment

Provision of service to minimum standard

For example, directions influencing utility companies (water and power suppliers).