Setting financial goals: let's get started
American author Norman Vincent Peale once said: “Shoot for the moon. Even if you miss, you’ll land among the stars.” I think I appreciate the concept – if you aim high enough, then even if you fall short, you’ll be better off than where you started from – perhaps the saying should be the other way around!
Without having goals and knowing what you want to achieve, it is impossible to plan effectively for what you need to do in order to achieve those goals.
That leads me to another old saying, supposedly coined by Benjamin Franklin: “If you fail to plan, you are planning to fail.”
If you can’t plan without goals and if you don’t plan, then you will fail. From this, it’s clear to see why goals are so important – without them, you are much more likely to fail.
But how do you go about developing financial goals?
In my view, to start with, you need to remove the word ‘financial’ and instead focus on what you really want to achieve in your business – what are your overall objectives? These could include retiring without having to pay run-off cover / extracting capital value from your business to facilitate and pay for your retirement, for example.
Once those high-level objectives are understood, you can start to think about what your financial goals should be. These can be ‘stepped’ over time, ultimately leading up to what they need to be to meet your overall objectives.
Your financial goals may include a wide variety of factors. Setting too many goals will make it difficult to focus, so you should spend time determining what the critical factors are. If you’re an airline, for example, a critical factor may be limiting the amount of time your planes are on the ground – the longer your planes are in the air, the more money you’ll be making for the airline and the costly assets will be sweated.
Some financial goals for your firm may include:
- cross-selling targets
- time taken between stages in a matter.
In a people business such as the law, it is likely that your ultimate financial goals will be achieved by individuals hitting their own targets. I prefer to steer away from fee income when setting goals as it can:
- create the wrong behaviours in a team environment
- be non-profitable
- make funding the business more difficult.
There are, of course, many non-financial goals that could also be critical, such as client satisfaction or the assimilation of your firm’s culture across the whole business.
The goals you set should be linked back to the overall objectives of your firm. They may change over time, and could vary by fee-earner.
Once goals are agreed, assess what they need to look like at the point you want your overall objectives to be achieved.
Looking back from there, targets can be set, perhaps in steps moving the measurements from the current position to the ultimate goal. They also need to be SMART.
- If it is not specific and measurable, there is no point in having the goal at all. What gets measured gets done.
- If they are not achievable, people will say “why bother”, and ignore them. Small initial steps may help people to realise that the goals are achievable before they start working towards them. Specific and separate targets should also be considered by fee-earner, based on their role / experience / work type.
- If they are not relevant, the goals will not result in action and will not be met. Again, setting bespoke targets will help here.
- If goals are not time-bound, then people will drift, rather than drive, towards them.
All goals and measurements should be designed to improve behaviours and result in action. In order to change behaviours effectively, introducing goals should be part and parcel of a wider support mechanism for your people. That mechanism should help them to achieve the goals by:
- educating them on the reasons and benefits
- measuring progress and sharing that information on a regular basis to allow for self-management
- management and peer pressure (where one fee-earner improves their behaviours or performance because other fee-earners are performing at a certain level)
- rewarding and sharing successes.
Although the goals need to be achievable, realistic but stretching targets work far better. If they are not quite reached, then at least clear progress should be being made. Let’s shoot for the stars!
By Andy Poole, legal sector partner, Armstrong Watson
Andy Poole is the legal sector partner at Armstrong Watson, specialising exclusively in advising law firms. Co-author of the Law Society toolkit on Financial Stability in Law Firms , Andy heads the legal sector team at Armstrong Watson, which has 15 offices and over 400 people. The legal sector team advises law firms throughout the UK on strategic, structural and other business improvement issues as well as providing efficient accounting, tax and SRA accounts rules services.
The Law Society has partnered with Armstrong Watson, who provide accountancy services to law firms throughout the whole of the north of England.