First three considerations when setting financial goals

Wearing glassesMaking the leap from employment to entrepreneurship is very exciting, but virtually all new business owners have serious questions about their ability to survive and thrive financially. The exercise of creating, analyzing and refining financial projections has a huge impact on the decision to launch a business. The biggest benefit is that positive financial projections can help prospective business owners to feel confident in their idea, and in turn allow them to move forward in their planning.

The following three factors should be considered in preparation for preparing a projection:

  1. Declaring how much money you deserve

When a prospective business owner is considering leaving traditional employment, they are likely walking away from a position with a wage or salary. They might also have ideas about how much they want to earn, or what they would earn as a general manager or CEO of a similar business. Defining a targeted income can help to create a mid-term or long-term goal that defines successes in the new business venture.

  1. Determining how much money you need

It might be obvious that a brand new business likely won’t produce the income defined above immediacy upon launching. Most entrepreneurial minded people are prepared to forego some financial security in exchange for the lifestyle and longer term earning potential of business ownership. This is why setting a short-term personal financial goal is also important. It would be very difficult to create a successful business if the new business owner struggling with basic financial security. Building a financial projection that at least covers the individual’s minimum needs is essential.

  1. Defining a typical unit of sale

Defining what the new business will sell might come easily, but thinking about that product or service as a typical unit, rather than thinking about dollars of revenue, can help with modeling the business’s financial performance. For example, determining that a restaurant’s typical lunch cover is $15 will be easier for creating financial projections than trying to determine the targeted total revenue for an entire month or day. It is easier to say that 100 customers need to buy lunch than it is to say the daily target is $1500. It is easier to relate the 100 customers to the required marketing or sales efforts.

These three factors create a foundation of information to be used in a more comprehensive financial projection. That projection then becomes the basis for sales goals and expense targets.

The consultants at the Halton Region Small Business Centre provide worksheets and advice to prospective business owners who are creating their financial projections and writing business plans. Appointments are free of charge and can be booked by calling Halton Region at 905-825-6000 x 7900.

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