Unlike waiting and hoping for a change in unfavorable weather, adverse business conditions are within your power to alter. The process requires knowing the sources and causes of difficulties so that they may be corrected. Unfortunately, access to necessary data is often compromised by an entrepreneur’s focus on ordinary daily activities. The solution is establishing a habit of setting goals and having a desire to identify the progress you’re making.
Setting Measurable Business Milestones
Current goals should align with the larger vision you had when starting your business. Objectives for this year should be measurable targets accompanied by action steps to accomplish them. When your actions don’t produce the expected goals, making corrections is crucial.
Short-term goals are set by working backwards from your big vision. You want to decide the measures to achieve along the way to your ultimate long-term aim. Decide what spending and cash reserves you’ll need in the future to have the earnings you desire. These factors embody the planned scale of operations. Then you can set near-term milestones. Finally, you identify the routine activities that seem most conducive to reaching those milestones.
Income Statement Evaluation
Your big vision may be something out of your wildest dreams. But current goals require a dose of realism. Obviously, resources of time and money are limited. Your burden is using them optimally. The milestones are how much money you can derive from the available time. Scrutiny of the business income statement conveys not only this realized profit but also how you achieved it.
Revenue on the income statement informs you of how much you were paid for your time. Each of the expense categories reveals what you had to spend for earning the revenue. This information uncovers expenditures that can be reduced by a revision to your action steps. Changes in spending behavior can increase the profit resulting from the same amount of revenue. But altering the wrong expenses may adversely impact revenue. Continuous examination of income statement details shows you which actions are best at meeting your milestones.
Balance Sheet Examination
Evaluation of business milestones doesn’t end with the income statement. Examining the business balance sheet is also a key step for refining actions to meet your goals. Balance sheet items identify many of your milestones. For instance, the amount of assets (especially cash) that your business retained from its earnings is on the balance sheet.
Remember also to check the liabilities on your business balance sheet. Some of the cash and other assets may have been acquired with borrowed money. At the bottom of the balance sheet is business equity, which is the difference between business assets and liabilities.
In the equity section is an account for the funds you have personally withdrawn from the business. This is a negative amount that reduces the earnings retained by the business. When you have a long-term vision that necessitates reinvesting earnings, your near-term goal is building retained earnings. Evaluating a milestone for retained earnings is an example of a measurement to regularly scrutinize. When you get off target, a revised action plan is desirable.