Setting Business Goals-Use the SMART Method to Achieve Dramatic Results

By Nathan Cracraft Icon

Proper goal setting is a critical element of any successful business. Without realistic goals, business owners and employees are often left to follow a vague and winding performance roadmap. A clear set of goals helps a business continuously improve, compete more effectively, and fine tune its operations and processes over time.

For many entrepreneurs, goal setting is not always the easiest endeavor. Most business owners are so focused on their daily operations that they may often confuse tasks with goals. To be clear, goals are used to directly support a strategic objective or business plan. Tasks are short-term activities that keep the business running. Finally, goals consist of a series of actionable tasks to achieve the desired results.

To help in the goal setting process, most successful businesses follow the S.M.A.R.T ("SMART") methodology. This handy acronym helps simplify the process of goal setting and ensures that objectives are defined in the most effective manner possible. When following the SMART process, all goals must be Specific, Measurable, Achievable, Realistic and Time-limited. How does this work? Let us take a simple business example and walk through each of the SMART steps.

Sophie is an entrepreneur who owns and manages an architectural design firm. Her business is growing rapidly. She has grown from four employees to 15 in less than two years. She has a solid client base with several concurrent projects. Despite her firm's growth, her cash flow is a concern. Several of Sophie's clients rarely pay on time. This delinquency, if left unchecked, could cause a financial burden when trying to cover fixed costs such as salaries and office rent.

To help improve her cash flow situation, Sophie uses the SMART methodology to assist her in defining a cash flow improvement goal.

  • Specific - The statement, "Improving cash flow" is not a specific goal and would not prove useful to anyone trying to accomplish this objective. The goal must include more specific and actionable language. In this instance, Sophie wants to improve cash flow by reducing the time it takes her clients to pay.
  • Measurable - The statement, "...reducing the time it takes her clients to pay" is not measurable. Simply stopping here would make it difficult to achieve success. What amount of time is Sophie trying to reduce? After studying industry benchmarks, she quantifies her improvement goal. She wants to reduce the average payment cycle time from the current 45 days to a goal of 35 days.
  • Achievable - Is this goal achievable? Can she work with her clients and somehow encourage them to pay more quickly? After doing some analysis Sophie determines that part of the payment delay is the infrequency with which she sends out invoices. She also rarely calls her clients to follow up on past-due bills. A significant portion of this goal is within her immediate control. As such, Sophie feels this goal is clearly achievable.
  • Realistic - How realistic is it to expect a reduction in payment cycle time by 10 days? Again, using her research and industry benchmarks, Sophie feels that this amount of time is quite realistic. Besides, the payment term included in all of her project contracts is 30 days!
  • Time-limited - Finally, Sophie needs to place time limitations around her goal. A goal that lingers is not useful. Expectations must be set around when the objective is to be accomplished. Establishing time limits also helps business owners prioritize and plan for goals throughout the year. In this example, Sophie decides that she wants to achieve the reduction in client payment cycle time within six months.

Using the above process, Sophie's formal goal reads as follows: Within six months, reduce the average time it takes clients to pay invoices from 45 to 35 days.

Using the SMART approach to goal setting, business owners can set specific, measurable, achievable, realistic and time-limited objectives. While the process may seem difficult at first, it quickly can become second nature. This method ensures consistency across goals and helps business owners and employees alike clearly understand what is expected to accomplish any goal they set.

Nathan Cracraft is Managing Editor for the small business website The site caters to people who want to start their own small business and need some help coming up with ideas. For access to hundreds of categorized, small business ideas and thousands of helpful startup resources, check out New ideas and resources are added weekly.

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