How much money do you want to make this year? Setting a meaningful, yearly financial goal for your business is the best way to guide you into making smart choices that lead to growth and success. Allow your long-term vision to direct your short-term decisions.
Hello! Our goal at Harpoon is to empower you to take control of your finances, make more money, and eliminate some of the stress involved with running your own business. Every feature of our product has been designed to assist you in carrying out four simple rules we call The Harpoon Method. This method, combined with our friendly software, empowers you to take total control of your time, billing, and expenses, and puts you in charge of accomplishing your financial goals. Ready to dig in? Let's do this!
Setting a yearly financial goal for your business is an important first step towards financial stability. Your yearly goal will ultimately shape how your business operates, including the types of clients you work with, the kinds of services you offer, and the amount you charge for those services. We're about to walk you through the process of determining the right yearly financial goal for your business. But first let's set the stage with a quick story. A true story.
Note: Whether you're an independent freelancer or someone running a multi-employee agency, the principles outlined in The Harpoon Method can be applied to businesses both small and large. Feel free to adapt these best practices to your unique situation and have fun making it your own!
My first year as a self-employed designer was a frightening whirlwind of stress, uncertainty, and just plain "winging it." Although I had years of proven design skills under my belt, I was suddenly faced with the reality of needing to convert those skills into a real business that made real money. And if you had asked me how much money I wanted to make during that first year, my answer would've been, "As much as I can!" It's an honest answer, but not one that helped me run a successful business. Instead I found myself saying, "Yes!" to every project I could find, working too many hours, and eventually burning out. I wasn't really running my business. It was running me. Something needed to change.
Things started to turn around quickly when I took my first step towards financial stability. "As much money as I can!" wasn't cutting it. Instead I set a specific yearly revenue goal for my business. I figured out exactly how much revenue I needed to generate each year in order to cover my expenses, make a healthy profit, and live the lifestyle my family desired. I was then able to work backwards from my goal, shaping and building my business up to achieve my desired income. This was one of the keys that helped transform my business from an unpredictable roller coaster ride into a stable, profitable, and enjoyable experience.
A financial goal allows you to advance from a reactive mindset to a proactive one.
Whether you're an independent freelancer or someone running your own studio or agency with multiple employees, setting a financial goal for your business starts with setting your personal goals. Ideally the business you're running will generate enough money to support the lifestyle you desire. But how much money will that take? First let's figure out how much money you need to live your current lifestyle. And later we'll talk a bit about your future lifestyle. Both are important.
Let's take some inventory of your current lifestyle. Whether you're new to running your own business, or have been at it for years, you probably have at least a general idea of how much money you need to make each month to support your current lifestyle.
Setting a financial business goal starts with setting your personal goals.
But let's get specific. The more specific you get with the amount of money you need, the more confident you'll be with running your business, and that includes the types of clients and projects you take on and the amount you need to charge for those projects.
Grab a piece of paper (or your favorite note-taking app) and make two columns. Label the first column, "Business" and the second column, "Personal." Brainstorm all the different categories of your business and personal life you need to account for, and jot them down in the appropriate columns. Don't worry about how much money is involved just yet. In your business column you might have categories like software, office rent, health insurance, accounting, contractor or employee salaries, etc. In your personal column you might have categories like groceries, housing, transportation, clothing, childcare, etc.
And don't limit your categories to expenses only. If your business is simply covering your expenses, then you're only breaking even. A healthy business is one that profits and grows. So you'll want to include categories that take advantage of a surplus of revenue you'll be generating that goes beyond simply covering your expenses. These would include categories like savings goals, investments, emergency funds, retirement, charitable giving, side projects, and even vacations.
Once you have a healthy list of categories, you're ready to start calculating the actual costs involved with those categories.
What we're ultimately after here is a yearly revenue goal for your business. It's the amount of money your business needs to bring in each year in order to cover your expenses, make a healthy profit, and support your current lifestyle. To find this number we'll start by taking the business and personal categories you brainstormed earlier and assigning a yearly dollar amount to each one. This might require a bit of math.
Tip: Math might not be everyone's cup of tea. But don't sweat it. Just follow along and when you're ready, simply use our free Yearly Goal Calculator, which handles all the math for you. Nice!
For example, if the office rent for your business is $500/month, its yearly amount would be $6,000. And if your personal grocery bill is $100/week, its yearly amount would be $5,200. Do this for each of your business and personal categories until you have a yearly amount for each one. Then add together the yearly category amounts to get a total yearly amount for your business and a total yearly amount for your personal life. You can now calculate your yearly revenue goal like so:
But wait. What about taxes? You won't get to keep all the revenue your business generates. The government will want its cut. So you'll need to generate even more revenue than you calculated above in order to cover all your category amounts and have enough left over to pay taxes. This is where the math gets kind of messy, but thankfully our free Yearly Goal Calculator mentioned earlier will also handle the tax calculations for you.
Congratulations! You now have a grand total for a yearly revenue goal that covers all of your expenses, includes a healthy profit, supports your current lifestyle, and leaves enough left over to pay your taxes.
At this point, if you're like me you might be somewhat intimidated by the yearly revenue goal amount you came up with. I distinctly remember thinking, "There's no way I can generate that much revenue. That's way more than I was making as an employee!" If you're having similar thoughts here a few things to consider:
Now let's talk about your future. The yearly revenue goal you calculated above should be enough to cover the cost of your current lifestyle. That's good. You're starting with where you're at. But what about your future lifestyle? Most of us have at least a general idea of things we'd like to do in our lives that we can't quite afford to do just yet.
Get a clear picture of the future lifestyle you want your business to eventually support.
Take a moment and sit back in your chair, close your eyes, and imagine the lifestyle you'd like to be living a year from now…two years from now…five years from now. Don't worry too much about what you think you can or can't afford with your current income. Where do you see yourself living? What kind of vacations would you like to be taking each year? How much extra do you want to be setting aside for retirement? Do you picture yourself getting married, or starting a family, or maybe growing your existing family? Or do you have a desire to travel, running your business on the road as you explore different parts of the world? Maybe what you're picturing is similar to your current lifestyle. Or maybe it's quite ambitious. Either way is OK. The point is, you have a clear picture of the lifestyle you want your business to eventually support.
This lifestyle is what the "future you" looks like. The lifestyle of "future you" is typically more expensive than your current lifestyle. The goal is to grow your business over time to eventually support the future you. But how long will that take? And how much will you need to grow your business each year to get there? Again, let's get specific.
Revisit the business and personal categories you came up with earlier, but this time add any new categories the "future you" needs. You'll also want to increase the amounts of your existing categories for the future you as needed. The end result will be your yearly revenue goal for the future.
The last thing you'll want to determine is how much yearly growth your business will need in order to eventually accomplish your future yearly revenue goal. For that you can use a simple formula:
For example, let's say your current yearly revenue goal is $50,000. And your future yearly revenue goal is $65,000. The difference between the two is $15,000. This is the total growth your business needs in order to eventually support the lifestyle of "future you." Let's say you'd like to give yourself 3 years to grow your business up to this level. You'd need a $5,000 increase in yearly growth to accomplish your future yearly revenue goal in 3 years.
Why is this important? Because a healthy business is one that grows, and more specifically you want it to grow with a purpose. In this case your purpose happens to be the lifestyle you envision yourself living three years from now.
So at the beginning of each year you'll want to increase your yearly revenue goal by your yearly growth amount. In the example above, that'd be a $5,000 increase each year. And then as each year progresses, you'll want to make the necessary changes to your business to foster the growth you want to see. That might require raising your rates from year to year. Or going after a higher caliber of clientele. The point is you're making decisions for your business through the filter of not only the revenue goals you have for this year, but with a larger multi-year picture in mind.
Setting a yearly revenue goal for your business is a big step towards financial stability. You now know how much revenue you need to generate each year in order to cover your expenses, make a healthy profit, and support your current lifestyle. And you know how much yearly growth your business will need to support your future lifestyle. If you haven't already, go ahead and enter your new yearly revenue goal into your Harpoon account. You can do so by clicking the "Edit" link near the top of Harpoon's Schedule.
At the same time you can also enter your revenue goals for the next few years by skipping ahead in your Schedule and setting a different goal for each year based on the yearly growth you calculated above. Your future you will thank you.
Next we'll focus on Rule #2: Planning Your Revenue. We'll walk through how to work backwards from your yearly goal and break up your year into manageable, bite-sized pieces as you plan out your monthly revenue and projects.
But for now a hearty congratulations from the entire Harpoon team on taking the time and effort to set a meaningful, yearly revenue goal! It's one of the most valuable pieces of data you can ever have for your business.
Disclaimer: Harpoon and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
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