Set­ting goals can always be a headache for busi­ness own­ers. Where do you begin? How many goals should you have? Are you being real­is­tic with your goals? These are all impor­tant things to con­sid­er, but it doesn’t stop there. Next, you will need to track the progress towards those goals. That is a step that busi­ness own­ers so often leave out of the process because they get caught up in the day to day. I know, it sounds like a ton of work. That is why we devel­oped a tool to help busi­ness own­ers put all their goals/thoughts in one place to help them stay focused on grow­ing their busi­ness the way they want to grow it. This tool is called Cas­cad­ing Met­rics™.

Cas­cad­ing Met­rics™ starts with a busi­ness’ vision and big hairy auda­cious goal (BHAG) to set the tone of what the busi­ness wants to accom­plish. Next, you will begin to set goals for the upcom­ing year that should sup­port you on your jour­ney to achieve your vision and BHAG. Then, you will decide what data you will track to mea­sure the progress of these goals.

This is first done at a com­pa­ny-wide lev­el. After you have your com­pa­ny-wide goals and mea­sures account­ed for, you can then cas­cade down to depart­men­tal and indi­vid­ual goals and mea­sures. The indi­vid­ual goals will help you achieve the depart­men­tal goals which will help you achieve the com­pa­ny-wide goals which will ulti­mate­ly help you achieve your vision and BHAG. Once every­one on your team is focused on mov­ing in the same direc­tion, you get to your des­ti­na­tion much more quickly.

Vision & BHAG

Your vision is your ulti­mate end goal. This is what you want the busi­ness to become. An exam­ple of a vision state­ment could be “to be the pre­ferred ser­vice provider in this mar­ket.” Next, your BHAG should be an ide­al goal that you set to help you achieve that vision. For instance, your BHAG could be to have $5,000,000 in sales in three years. If you are grow­ing your sales, then that would sup­port that you are work­ing towards being the pre­ferred ser­vice provider in your mar­ket. This is a sim­ple exam­ple and your BHAG does not have to revolve around sales. Every busi­ness is dif­fer­ent and your vision and BHAG should both be things that you are excit­ed to achieve in your business.

Annual Goals

First step is to begin at the com­pa­ny-wide lev­el. We break these goals into five key areas that busi­ness­es need to con­sid­er. Usu­al­ly, busi­ness­es cre­ate two to five goals for each key area. The key thing to remem­ber is that it is hard to stay focused on achiev­ing goals if there are too many of them. If you try to accom­plish every­thing, usu­al­ly noth­ing gets accom­plished. It is impor­tant to focus on the key goals that will help you move toward your vision and BHAG the quickest.

The first sec­tion is Key Ini­tia­tives. These are the key actions that you want to take in the busi­ness the next year. These are not finan­cial num­bers that you want to achieve. These are big pic­ture items that will help you achieve those finan­cial num­bers. Exam­ples of this could be to hire and onboard a new employ­ee, devel­op a tran­si­tion plan for the next gen­er­a­tion, imple­ment a mar­ket­ing strat­e­gy, or devel­op a plan for mov­ing to a new office space. Next, you will want to look at your cus­tomer goals. Exam­ples could be to begin work­ing with cus­tomers in a new mar­ket, to have a cus­tomer reten­tion rate of x%, or to have your cus­tomers spend an aver­age of $x with you on an annu­al basis.

The last two cat­e­gories do not con­tain goals that come direct­ly from your finan­cial state­ments. The next three key areas do. The first of these three is Sales and Gross Mar­gin. Your sales goal could be to have $x in sales this year in total and/or to have $x in sales from cer­tain mar­kets and indus­tries. Your gross mar­gin goal is usu­al­ly a per­cent­age. This is the per­cent­age of sales that you have left after you pay your cost of goods sold. Next, you will want to look at Finan­cial Results. The two main pieces that busi­ness­es usu­al­ly look at here are total expens­es and net income. You could set a goal to lim­it your total expense spend­ing for the year. You could also set a net income goal so that the busi­ness is mak­ing the lev­el of prof­it that it should. Final­ly, the last area is Finan­cial Strength. These goals are geared more towards the bal­ance sheet. Goals could include becom­ing debt free, improv­ing work­ing cap­i­tal, improv­ing col­lec­tion time on accounts receiv­able, or improv­ing the equi­ty of the business.

Key Financial Indicators (KFIs) and Key Performance Indicators (KPIs)

KFIs and KPIs are the mea­sur­ables that will help you achieve the goals that you have set. KFIs are the mea­sures that come from your finan­cial state­ments. These mea­sures would relate to your sales, gross mar­gin, finan­cial results and finan­cial strength goals. An exam­ple could be to track your accounts receiv­able days to see if you are improv­ing your col­lec­tion time on out­stand­ing invoic­es. You would also want to track any sales, gross mar­gin, expense and net income num­bers against the goals that you have set. These mea­sures should come eas­i­er to you since they direct­ly relate to your finan­cial statements.

KPIs, how­ev­er, do not come from your finan­cial state­ments direct­ly. These are mea­sures of activ­i­ty. For instance, if you want­ed to improve cus­tomer reten­tion, you could imple­ment a sur­vey sys­tem and track your over­all rat­ings or track cus­tomer refer­rals as hap­py cus­tomers tend to refer. You could also track num­ber of cus­tomer com­plaints. If you want­ed to focus on devel­op­ing your employ­ees, you could track the num­ber of train­ing events that employ­ees have attended.

Both types of mea­sures will help you keep a pulse on your busi­ness and should help you stay focused to achiev­ing your goals.

Once you have your com­pa­ny-wide goals and mea­sures com­plet­ed, you can then fol­low the process again to cre­ate goals and mea­sures for the depart­ments and indi­vid­u­als in your busi­ness. This tool should help you hold every­one in the busi­ness account­able. This tool is only valu­able if you stick to it once you’ve com­plet­ed it. You will need to meet reg­u­lar­ly with your lead­er­ship team, your depart­men­tal lead­ers and those indi­vid­u­als to review the data and see if you are on track to reach­ing your goals. If you are not, what actions does the team need to make to get there? After you’ve imple­ment­ed this tool, you should find that your team is more engaged and focused on help­ing the busi­ness achieve its vision.

Download Cascading Metrics by Mackey Advisors

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