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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