Businesses concerned only with short-term goals overcome immediate challenges but fail to prevent their recurrence. Alternatively, businesses with only long-term goals may not last long enough to see them reached. Finding an adaptable middle ground between these two attitudes is a balancing act that senior financial analysts, finance managers, investment bankers, and other professionals must perform when making a financial plan.
Professionals capable of finding the balance between optimism and realism are compensated handsomely for their expertise and efforts: financial managers make an average yearly salary of nearly $130,000. As we discuss how to balance long-term and short-term financial planning, a valuable skill in virtually any field, consider where a career in finance could take you. Earning a Master of Business Administration (MBA) with a concentration in finance could lead to your next big career move.
Building Upon Short-Term Goals
Short-term financial planning is about solving immediate problems and developing strategies that will lead to results, usually within one year. Short-term goals should be achievable and adaptable to emerging circumstances. Let’s take a look at several common short-term goals and see how they translate into long-term success.
Reach Revenue Targets
Increasing revenue by the end of the fiscal year is a common goal for financial professionals, but accomplishing this task is not as simple as charging more for products or services, having employees work longer hours, or taking unnecessary risks—especially if you hope to establish sustainable business practices. Incorporating more forward-thinking strategies, such as broadening your audience or recruiting a loyal workforce, can ensure that your immediate fiscal growth continues into the future.
Resolve Cash Flow Issues
Cash flow issues are not automatically resolved when a company turns a profit. Business leaders who fail to account for how cash flows in and out of their company could experience record profits one month and payroll issues the next. Balancing long-term and short-term financial planning means more than just surviving from month to month. A strong financial plan will ensure that there are always enough cash reserves, especially during times of economic uncertainty, by budgeting for expenses accordingly.
Choose the Ideal Business Structure
From mom-and-pop stores to large corporations, every business needs to be properly structured. According to the U.S. Small Business Administration, “[t]he business structure you choose influences everything from day-to-day operations, to taxes, to how much of your personal assets are at risk.” Choosing the ideal structure for a business means saving money in the present and setting a company up for success in the future.
Find Sources of Funding
The axiom “it takes money to make money” will stay with you throughout your career in finance. Whether it’s a loan or investment, finding a reliable source of funding is often necessary to get a venture off the ground. Still, there’s no need to think of this as a necessary evil. Countless business partnerships have been born from these arrangements and are often instrumental in ensuring a company’s long-term success.
Long-Term Financial Planning
Once short-term goals have been established, it’s time to create a five- or ten-year plan that will see your company’s mission realized. Where will your company be in a decade? It’s okay if you don’t have the answer to that question just yet. That’s what long-term financial planning is for.
What is long-term financial planning? According to the Government Finance Officers Association (GFOA), long-term financial planning is “the process of projecting revenues and expenditures over a long-term period, using assumptions about economic conditions, future spending scenarios, and other salient variables.” Although the GFOA deals with government agencies, the principles of their long-term financial planning definition apply to businesses as well. Essentially, financial professionals are meteorologists who forecast budgetary needs instead of the weather.
To plan for these needs effectively, businesses should have SMART long-term financial goals. As outlined in Forbes, SMART stands for: specific, measurable, attainable, relevant, and time-bound. It may be tempting to keep a long-term financial goal broad—remain profitable, for example—but your long-term goals should be as well defined as your short-term goals. If your company has a short-term goal to generate $1,000,000 in net income in one year, you may also want to consider a long-term five-year goal of generating $5,000,000 in net income annually.
To achieve these long-term goals, you’ll need a financial plan that includes the following elements:
- Income statement: a statement used to determine profits and losses in a fiscal quarter or year.
- Cash flow projection: a prediction of how cash is expected to flow in and out of a business.
- Balance sheet: a summary of a business’s assets, liabilities, and equity.
Where do you get the data and information for these elements of a financial plan? By using the same processes established to achieve your short-term goals. When you build upon the lessons learned in a single year, you set the stage for achieving your long-term goals. You’ll still have to balance optimism with realism, but short- and long-term goals should both be part of your overall financial plan.
Planning for the Future
Long-term and short-term financial planning are two sides of the same coin. You can’t plan for the future without considering current needs. Similarly, you can’t plan for a lifelong career in finance without first considering your immediate next steps. Before enrolling at UT Permian Basin, all of the students in our online MBA program with a concentration in finance had to consider this very dilemma, and they all arrived at the same conclusion.
An MBA is a versatile degree with almost limitless potential, and an MBA with a concentration in finance will only make you a more viable candidate for lucrative positions. If you’re looking to establish a career in finance or advance at your current company, our program can help you get there. At The University of Texas Permian Basin, you will:
- Learn to analyze and interpret financial information.
- Explore multiple aspects of investment, economics, and accounting.
- Nurture your business acumen and leadership skills.
Many of our students already have established careers and demanding schedules. Fortunately, our MBA in finance program is 100% online and can be completed in as little as 15 months, which means you can continue working while pursuing your education. If your personal long-term goal is to rise through the ranks and obtain a high-paying paying position in the field of your choice, an MBA with a concentration in finance can help you achieve it.
Learn more about UT Permian Basin’s online MBA program with a concentration in finance.
Sources:
https://www.sba.gov/business-guide/launch-your-business/choose-business-structure