How to Set Business Goals and Hold Your Plan Accountable

Short answer: A goal is a target. A forecast is an honest estimate of where you will land. A plan is the set of drivers you change to close the gap between the two. Set four to six goals, work backward from each one to the drivers behind it, give every goal an owner and a review date, and compare actual results with both the goal and the forecast every month.

Most owners have lived this. You set a revenue goal in January, wrote it on a sticky note, and felt good about it. By March the note was buried under invoices. By September you checked the books and found out the year had already gone the wrong way. Nobody was watching, so nobody changed anything.

A goal does not fail because it was too bold. It fails because nothing connected it to weekly decisions and nobody checked it on a schedule. This post shows how to fix both.

Goal, Forecast and Plan Are Three Different Things

People use these words as if they mean the same thing. They do not, and mixing them up is how a plan quietly dies.

• The goal is where you want to be. Revenue of $250,000 is a goal.
• The forecast is where you expect to be, based on what you know today. It should be your honest best estimate, not your hope. Our plain guide to cash flow forecasting covers how to build one.
• The plan is what you will do differently to move the forecast toward the goal. It is a short list of drivers: more jobs, a higher price, faster collections, lower costs.

Here is the key rule: never edit the forecast to hit the goal. If the forecast says $232,000 and the goal says $250,000, typing $250,000 into the forecast does not close the gap. It hides it. When the forecast falls short, you have two honest choices. Change the plan so the drivers produce more, or accept the gap and move the goal. Both are fine. Hiding the gap is not.

Pick Four to Six Goals

One goal is too thin, because a business can hit its revenue target and still run out of cash. Twelve goals is too many, because no one can watch twelve. Pick four to six and spread them across three areas: profit, cash and the balance sheet.

Good candidates:

• Revenue for the year.
• Gross margin or net profit, so growth does not come at the cost of what you keep.
• Operating cash or cash balance, because profit and cash move on different clocks. We explain why in why profitable businesses run out of cash.
• Days sales outstanding (DSO), the average number of days customers take to pay.
• Debt or current ratio, a check on how safely you carry what you owe. Our guide to financial ratios explains both.
• An expense cap, such as keeping a cost line below a set dollar amount.

Give each goal two more things: a deadline and a review frequency. "Cut DSO from 45 days to 35 days by December 31, reviewed monthly" is a goal. "Collect faster" is a wish.

Work Backward From the Goal to the Drivers

A goal tells you where to go but not how. The way to find out is to work backward.

Take a hypothetical landscaping company. Last year it brought in $221,243 in revenue. The owner sets a goal of $250,000. First, how big is that step?

$250,000 divided by $221,243 is about 1.13. The company needs roughly 13 percent growth.

Now ask the honest question: is 13 percent realistic? It might be, if you have the crews, the demand and a few unsold weeks in the schedule. It might not be, if you are already booked solid. Do not skip this step. A goal you do not believe in will not get anyone's attention.

If the answer is "maybe," break the gap into drivers. To keep the math simple, say the company did about 150 jobs last year at an average of about $1,475 each. That is close to $221,000.

• More jobs. At the same average size, $250,000 needs about 170 jobs. That is 20 more jobs than last year, or about one extra job every 2.5 weeks.
• Higher price. With the same 150 jobs, the average job would need to reach about $1,667. That is a price increase of about 13 percent.
• Retention. If 20 customers left last year, and each bought one job at the average size, keeping them would have been worth about $29,500. That alone covers the gap of $28,757.

Now the plan has handles you can pull. The owner can decide that retention is the cheapest lever and put a price review on the calendar.

Give Every Goal an Owner and a Review Date

A goal with no owner belongs to everyone, which means it belongs to no one. For each goal, name one person who answers for it:

• The owner takes revenue and gross margin, because price and mix are owner decisions.
• The bookkeeper takes DSO, because collections follow from invoicing and follow up.
• The sales lead takes new jobs or new customers.

Keep it all on one shared page, in whatever tool your team already uses. A simple table works: goal, target, deadline, owner, current number, next step. Review that page once a month, on a fixed date, for 30 minutes. Our post on the five financial numbers to review monthly makes a good agenda for that meeting.

Then write your decision triggers in advance, while you are calm. For example:

• "If gross margin is below 38 percent for two months in a row, we review pricing."
• "If DSO rises above 40 days, the bookkeeper calls every invoice over 30 days old."

A trigger turns a vague worry into a decision that is already made. You do not have to argue about it at the moment the numbers look bad.

Track Actual Against Goal and Forecast Every Month

Each month, line up three things: the goal, the forecast and what actually happened. Then ask one simple question about pace. How much of the goal is done compared with how much of the year has passed?

At the end of September, 75 percent of the year is gone. If revenue stands at 68 percent of the $250,000 goal, that is $170,000. A steady pace would have put you near $187,500. You are behind, and you found out in time to act.

Be careful with seasonality. A landscaping company earns most of its money in summer, so a straight 75 percent test can mislead you. If last year the company had earned 80 percent of its yearly revenue by the end of September, then 68 percent is behind even by its own history. Compare year-to-date with last year's share for the same month, not just with the calendar.

When reality moves, revise the forecast, not the goal. If a big client leaves in June, update the forecast to show the loss. Then look at the gap between the new forecast and the goal, and decide again: change the plan or accept the gap. For a deeper look at building the forecast itself, see why a trend line is not a cash flow forecast, and for the short term, a 13-week cash flow forecast. For which numbers deserve a goal, see the financial KPIs every small business should track.

How 2diff Business Helps

2diff Business reads your figures and never writes to your books. Here is what it does for goals and plans.

The Goal Center holds targets for any of 36 metrics across the profit and loss, balance sheet, cash flow and ratios, each with a target and a deadline. Pick your four to six from that list. The goals table shows your current figure (year to date for profit and cash flow, the latest balance for balance sheet items), your progress toward the target, and a status of On Track, At Risk or Behind. Cost, liability and debt goals count as met at or below the target, which is how you would expect a cap to work.

You can export your active goals to CSV or Excel with the target, the current value and your notes. When you clear or replace a set of goals, History keeps each target beside the figure reached at that point, so you can look back and see what you aimed for and what happened.

For the plan side, the Forecast tab's Drivers method shows what a revenue growth, cost and expense plan produces, by year, quarter or month.

The owners, the shared review page and the pace check described above are things you keep and do yourself, outside the app. The export carries your notes, so you can bring them to the monthly meeting. The guide explains how to use 2diff Business.

Summary

Keep the three ideas apart, and never edit the forecast to hit the goal. Work backward from each goal, name an owner, write your triggers in advance, and review actual against goal and forecast once a month.

You can try the demo with sample data without connecting any accounts, or compare plans on the pricing page.

Related Reading

• 5 Financial Numbers Every Small Business Owner Should Review Monthly: A simple agenda for your monthly goal review
• 5 Financial KPIs Every Small Business Should Track: Which metrics are worth setting a goal on
• Why a Trend Line Is Not a Cash Flow Forecast: Building a forecast from drivers
• Why Profitable Businesses Run Out of Cash: Why profit and cash need separate goals
• Financial Ratios Explained: Debt, liquidity and margin ratios in plain English
• How to Analyze an Investment in Your Small Business: Testing a goal that needs spending first, with payback, ROI and NPV

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This content is for educational purposes only and does not constitute financial, tax, accounting, or legal advice. Consult with a qualified professional for advice specific to your situation.