Why is it that you want to start a small business? Money? Fame? Personal freedom? Ego gratification? Retirement income? Inability to get rehired or retrained? Discomfort with larger organizations? If someone were to ask you why you're going into business for yourself, what would you say?
Set economic, personal, and retirement goals
For many people, it helps to translate expectations and desires into concrete terms by setting long-term goals. We've organized these into three broad categories: economic goals, personal goals, and retirement goals. We'll discuss each of these in detail.
You should also remember that while it's good to have long-term goals, such as getting the business off the ground and helping it grow, you also need to set short-term goals relating to the formation of your business. Your short-term goals should be realistic and achievable. Examples include:
- Selecting a suitable name for the business.
- Obtaining a business license or permit.
- Finding a good small-business advisor.
- Establishing a business credit card account.
It will be important psychologically in those chaotic first months to be able to feel that you're making some progress. Short-term goals can help you achieve those small but crucial victories.
Economic goals drive financial success
Obviously, you want your business to be a success. How you define success depends on a number of personal factors. Assuming you've been in the workforce for awhile, you know what kind of lifestyle you can afford on your current income. If you're like most people, you'd probably like to earn more. Many people feel that self-employment is the way to do it.
On the other hand, if you're just starting out and prefer running your own business, these factors probably won't affect your decision to any great extent.
Sometimes, it's economic pressures that cause a person to consider opening a new business:
- Increase earnings. Some people believe working as an employee in a corporate setting limits their earning potential, and they want the chance to make the kind of money they feel they deserve.
- Replace earnings. Some people have been downsized and they need to replace their lost income.
- Supplement earnings. Changed family circumstances may require a second source of income, which translates into a part-time business.
When setting economic goals, remember that most businesses don't immediately produce profits for the owner. Be realistic about how long it will be before your new business becomes an established and secure source of income. Also, be realistic when determining how long you can survive with your new business operating at a loss.
Personal goals make success worthwhile
Money isn't the whole story, at least for most people. There's a certain satisfaction in "doing it yourself" that may not be quantifiable, but is important. Typical reasons that people choose to start a business include:
- Freedom. Some people just don't like working for others, and they want the freedom to make their own decisions. Owning your own business is a way to achieve personal freedom on many levels.
- Career change. Most people change jobs or even careers several times during the course of their lives. Sometimes it's by choice; other times, existing jobs simply disappear.
- Satisfaction. Some people feel trapped in a field they don't enjoy and they want a chance to work at something they find more interesting.
- Recognition. Being an expert or authority in a particular field is important for many people. They don't just want to start a business; they want to be recognized for the quality of their work and their expertise.
- Flexibility. Some people want the freedom to satisfy personal needs such as working outdoors, maintaining irregular hours, having seasonal vacations, etc.
- Responsibility. Some people feel lost in a corporate setting and they want the chance to play a bigger role in their chosen field.
- Professional growth. Some people believe their ideas are being ignored or not being used properly in a corporate setting, and they want the chance to do it their way.
- Benefits and security. With corporations looking for ways to control costs, the benefits offered to employees aren't as plentiful as they once were. Many people feel the traditional advantages of working for a large employer are gone. Retirement plans are increasingly less generous, corporate health plans cost employees more each year, and the job security corporate workers once enjoyed has been greatly reduced.
Retirement goals guard your future
Most people look forward to a time when they can relax and enjoy themselves without the need to work. The chance to do what you want when you want to is a strong motivator. Admittedly, some people choose not to retire because they enjoy working. In fact, many successful small business owners work into their 70s and 80s. However, the vast majority of people look forward to retirement. Many strive to make it happen sooner rather than later.
Anyone who has spoken with a personal financial planner knows it takes a lot of money to retire and live comfortably. Many people believe they can do a better job of ensuring they'll have enough money for retirement if they're in charge of the source of their income.
In addition, a successful small business can provide more than just steady income saved for the future. Prior to retirement, you may be able to sell your thriving operation for a nice profit or sell ownership interests to others, who then will run the business while you collect a share of the profits.
Why goals are important
Goals are important because they will affect just about everything you do as you plan, start, and operate your business. Goals are not just the destination you're driving toward; they're also the painted white lines that keep you on the road.
You have a job that pays you $35,000. You hate your job and yearn to leave. You have an idea for a small business that involves servicing a small niche market, and you set a goal of being recognized as the expert in that niche area within five years.
You analyze your idea and discover that, while no one else is servicing that market, it's a small market and you're not likely to make more than $25,000 for at least the first three years. But you also discover that, because your business is unique and your chances of becoming a recognized expert are good, you'll have much greater income potential after the first three years. Despite the expected reduction in income for three years, you decide the risks are worth it and that you'll start the new business.
Goals play a prominent role in just about every decision you make along the way, from how you structure your business, to whether you hire employees, to how you sell and market your product or services.
Now that you have some idea of what your general goals are, the next step is to make those goals concrete by quantifying them. For example, it's not enough just to determine that you want to change professions or that you want to be your own boss. You need to develop specific targets by quantifying your goals.
Goal-setting guidelines for business owners
Quantifying your goals can be a long process. You'll have to gather a lot more information before you're ready to set specific targets. Eventually, you'll probably want to put those goals together in the form of a business plan.
But before we move on to the process of getting that information, let's take a look at some of the guidelines you should follow when quantifying your goals.
- Be specific. Establish targets that can be easily measured, and use numbers as targets whenever possible. For example, you may set a goal of selling your goods or services across a particular number of counties or states, having a certain number of employees, or reaching a particular level of sales. Tie those numbers to specific time frames (within six months, within two years, within 10 years, etc.).
- Be realistic. Having high expectations is great, but make sure that you establish targets that are reasonable and potentially achievable. If you're opening a fast-food restaurant, claiming you want to be bigger than McDonald's within six months is not realistic.
- Be aggressive. You can be realistic and still aim high. Don't set goals that are too easily achieved. Also, be sure to set both short-term and long-term goals. If, after six months in business, you accomplish all of your goals, then what? Don't sell yourself short--if you want to be bigger than McDonald's within 20 years, go for it.
- Be consistent. Beware of inadvertently setting inconsistent goals. For example, a goal of growing fast enough to have three employees within two years might be inconsistent with a goal of earning a particular amount of money if the cost of adding the employees ends up temporarily reducing your income below the target level. There is nothing wrong with having both goals. Just be aware that the potential conflict exists, and establish priorities among your goals so that you know which ones are most important to you.
Some people have a hard time setting goals because they just don't know where to start. If that applies to you, try this exercise. Start with an easily quantifiable goal. Start with the amount of money you'll need to earn in order to cover your basic living expenses. Only when you have met that need can you begin to look to other goals.