Financial performance is a critical component of an organization as it not only tells investors how the business is doing but also sheds some light on the performance of the management and if the profits and operations are on track.
While businesses pay a lot of attention to financial performance, they tend to forget that setting financial performance objectives is equally as vital as they are the foundation for improving the performance of the business. Goals help with planning and tracking, ensuring the objectives are met within the provided timeframe.
For a business to achieve its financial performance objectives, they also have to balance other business areas.
To drive good long-term financial performance, it is imperative to set SMART objectives. The objectives should then guide your organization in developing a strategic plan to help you achieve them. Leading indicators should also feature to measure performance and indicate when corrective actions need to be taken.
Financial Performance Objectives
Some of the financial performance objectives you can set for your business include increasing venue, decreasing costs, and increasing profits. These objectives should be specific, measurable, achievable, realistic, and timebound.
KPIs and initiatives should therefore accompany them. These KPIs should have timelines to make it possible to measure the progress over time.
The Balanced Scorecard Framework (BSF) would be the best for managing your financial performance objectives. The framework connects the dots between the goals, KPIs, and initiatives or action plans.
For instance, if the objective is increasing profits, the KPI can be achieving $700,000 in profits per quarter. The initiatives could be hiring a sales team or monetizing some of the organization’s projects.
The progress of the KPIs can then be reviewed after every quarter. This way, the business can tell if the initiatives or action plan is working or needs reviewing.
Balance Perspective in Setting Financial Objectives
Worth noting is that the numbers are not the only factors that can drive your financial performance. There is customer perspective, internal processes, and learning and growth.
Customers are critical to your bottom line and the success of your strategy. Therefore, you should have goals, KPIs, and action plans for enhancing the customer experience, the market perception about your brand, and improving the community’s well-being surrounding your business.
The same case applies to internal processes. Internal processes may include quality control, creating efficient workflows, and automating processes to see reduced costs and quality production for higher profitability.
There is a need to strike a balance between learning and growth. Investment in learning and continuous development will reflect on the financial performance of your business. Some of the objectives are ensuring that the company has skills for the future, empowering the workforce, and reinforcing the organizational culture.
Your financial performance goals need to be balanced and cut across the four perspectives for long-term success.
The Balanced Scorecard Framework is a valuable tool to use in setting objectives. Progress should be tracked and reviewed to follow through with the goal.
Based in New York, Jason Feintuch has dedicated his career to helping businesses exceed industry standards in finance.