How can I set myself a long term goal if its changing every year?

Question

When I was reading your answer to the question on the forum "What is better short term or long term financial goals?". I was unclear about your answer that you provided.

When I was reading the answer that you provided I was struggling to understand why you said both long term and short term financial goals would help a business, then at the end of the answer you said that a long term goal would be good and you can change it every year. That to me is not a long term financial goal it is a short term one, so why would you need to reset your financial goal every year if you have decided to set yourself a long term goal to achieve?

Another thing that I was unclear about is that you said that just looking at your stationary bill for the month would be sufficient to get the best financial goal that you can achieve whether short term or long term, now to me if you want to set yourself a goal you haver to look at all the possibilities of whether you can achieve or not. Now if you looked at just the small things in your business could you set yourself a decent enough goal for the business to survive?

Answer 1

The terms long-term and short-term are a bit meaningless unless you put values on them. In business, you are constantly measuring different aspects of the business.

I have edited my previous answer to make it clear that one paragraph is about long term goals, and the final paragraph is about short term goals.

What you really need to do is forget those terms. If anyone asks you about them, you need to ask them what they mean by long-term and short-term. They mean different things at different times, and the only thing that is certain is that long-term is longer than short-term.

Long term goals
As we are talking more about small businesses here, the long term goals are really the long term goals of the owner. My general advice would be to say how much you want the business to be earning in 10 to 20 years time. For the sake of this answer, I will settle on 15 years, so you have a 15-year plan. You also need to think about other big issues like will you be local, national, international? Will you remain self-employed or have a hundred people working for you. These long term goals  - your 15-year plan - set the background for you day-to-day decision making.

In my earlier answer, I mentioned a business plan. This is usually required by your bank, and usually covers tree to five years. One could call this a medium-term plan, but as I have said this is meaningless, call it a five year plan.

As a practical example (and this happens more often than people think) consider the unexpected big order. You've set up your local IT support service, and you are growing your customer base in your city. Your reputation grows, and everyone recommends you as the best IT support in the world.  A bank manager is complaining about his shoddy international IT support company over drinks with one of your larger clients. Your client sings your praises, and the bank manager wants to talk to you about taking over IT support for all the branches in a 20 mile radius with a view to spreading throughout the region, and possibly beyond.

If your 15-year plan is to remain self-employed, you say No Thanks. If you have huge ambitions, you talk to him about financing the deal for your extra staff and equipment. If you have no long term goal, you make the wrong decision.

Short term goals
Every business has to have annual accounts, and no self-respecting financial freedom seeker should run a business without a budget that says what he expects those accounts to look like at the end of the current financial year.

Time does not stand still, so you also have to consider next year. Now next year will be influenced by your 15-year plan. If you want to stay the same, take this year, and add a bit for inflation. If you want to double your size every year, then take this years actual figures and double the sale figures for next years budget, adjusting all your associated costs to cover the sales growth. That is basic short term financial management. However, a year is too long if you are looking for rapid growth. You need a series of plans and targets that cover months or weeks, possibly even days.

So, none of these terms is fixed. Each year you move forward. If you are happy running a profitable company at the right size for you, then managing goals is different from trying to grow rapidly. But every business has to account for inflation, and every business has to review current technology changes and other market influences such as fashion, and other factors such as changes in supply chain.

You can never stop setting and changing your goals. Long-term goals are vital to make sure you achieve your ambitions. Short term goals are vital to make sure you achieve your plans. If you stop having ambitions and stop making plans, you can stop worrying about goals, and enjoy your life in the retirement home.

In summary, you need a current annual budget, next years budget, and a forward 10-20 year plan. Depending on your situation, you may also need a 3-5 year business plan. None of these are better than the other, they are just different. When you are planning, you start long, and work towards now. When you are managing, you manage finances today, with a view on where you want to be i months and years to come.

It is all quite boring, so the sooner you earn enough to pay an accountant to do it, the better.