Goals Must Be Measurable to Be Effective. Setting goals. Sounds simple enough. From primary school through to college, you have probably been taught to set goals for your future. But in a small business, goal setting is the key to planning and to keeping your efforts on track for long-term success. It is easy to look at your monthly general ledger for a profit at the end of the period and it is easy to check your bank account for a positive balance each month, but for long-term success you must set goals and then measure your progress against those same goals too.
If your business enterprise has dealt with banks or other sources of funding, it is likely you had to prepare a business plan. A good business plan incorporates a solid mission statement or business purpose. Why did you start the business and what do you set out to accomplish over the long haul? And “getting rich” cannot be your mission statement! But a mission statement is strategic and long-reaching. It is a statement of purpose that will serve your enterprise throughout the year and a statement that will focus your efforts as you grow and expand. It is like a compass – it will keep your enterprise on course.
But because a mission statement is so strategic in nature, it is necessary to have a series of goals established at the beginning of the year that will help keep your business aligned with its mission and that will help the business be or remain successful. For example, if you are starting a beauty parlour that will feature a number of stylists, nail technicians, and perhaps a small beauty supply retail operation, your mission statement might be something like, “To provide our clients with the products and services that will make them look their best and feel self-confident about their appearance”. To be aligned with your mission statement, you only hire well trained clinicians with so many years of experience and a list of solid and verified references. But how do you know you are successful? By setting goals and meeting or exceeding the goals.
The primary characteristic of a good goal is that is can be measured. You do not know if you have met your goal if you do not have an objective measure. Using the same salon example, you set a goal for client growth of 10% per year. If on 1/1/2009 you had 100 clients and at 12/31/2009 you had 111 clients, you know that you met, and in fact, exceeded your goal. And throughout the year, you could have measured your progress against the goal. A goal like, “I will grow my client base” suggests that if you went from 100 clients to 101 was a successful year, yet you would hardly feel successful if you only added 1 client in 365 days.
Most businesses have between 5 and 8 goals each year. Goals should also have some financial metrics in mind. Not only the example in terms of client growth, but a goal such as to grow your profit margin by 5% is a measurable goal and one that is certainly linked with success. Another goal might be to expand your staff in order to achieve more client traffic for the small retail operation as in the salon example again. Perhaps the goal is articulated as “I will add one stylist who has a client list of 100 or more” or another goal might be “grow retail operation revenues by 15%” measured by monthly sales figures from the sale of hair care and nail products from the front of the salon.
Goals are also meant to focus management attention on issues in order to get measurable responses. For example, if you are running a small restaurant and you are having trouble retaining staff, perhaps the goal is “to reduce turnover from 20% per year to less than 10% in 2010”. You will rely on your staff and payroll records each month to help measure your success and in order to meet the goal, you will put in place programs to help keep staff happier or to help improve tips or perhaps you will fire the lunch manager who seems to be generating all of the ill will.
Goals also should not be established in isolation. Share your goals with your staff, if you have a staff. In the restaurant example, if turnover if the problem, talk with an existing employee about why he or she is quitting. Learn about any issues or concerns from current staff. If you are a sole proprietorship, post your goals so that you can make management decisions that are consistent. And when you budget, make sure that you are allocating money where it will help you to achieve your goals. For example, back to the salon example, if you want to sell more products in the front of the salon, examine your product turnover and sales and inventory appropriately to meet customer demand and make sure that you have adequate stock so that there is product to sell. But in the same example, do not tie up too much money in inventory. Metrics to support optimal inventories include inventory turns balanced against costs to finance the inventory, if financing costs are involved, and margin. A product that is particularly popular that can be bought in quantity, stored cheaply, and sold at high margins is ideal.
Goals are an important part of measuring a business’ success. Goal setting is the part of annual planning that keeps a business on track for prosperity. Goal setting is also part of articulating in practice the enterprise’s mission statement. But, remember that goals are not useful unless you can measure your success (or failure) against the goals.