How to set profit goals: A guide for self-employed Canadians

The new calendar year is approaching and you know what that means…it’s goal-setting time! No, we are not talking about learning knitting and exercising more.  We are talking about business goals. And just like all goals, there is a method to setting achievable and clear goals in business. If your goals right now sound something like “next year, I want to make x many dollars,” we wrote this blog for you. 

There is nothing wrong with shooting for a big number.  In fact, we love that! Dreaming big is one thing. Dreaming big and having a numbers-backed plan to get you there is a whole other ballgame. If you want to be able to look back at your business next December and celebrate having reached the goal you set for yourself, you need to work backwards and figure out exactly what it's going to take to get there. 

Oh and by the way, if you are reading this on a sunny day in May, these strategies will work for you too. January 1st is an arbitrary start date. Your new year can start anytime. We recommend starting today. 

Get to know your business numbers

We say this a lot (and will keep shouting it from the rooftops)- without a clear handle on your business numbers, you can’t set effective goals. If you have messy books, now is the time to clean them up and set yourself up for financial success in the new year. Your books are not just something that you hand over to your tax preparer once a year. They are your go-to business planning tool - a living document that can act as a roadmap to success in your business. They are chock-full of insights that will help you plan out your next twelve months, and beyond.  Let’s get started!

The first number you need to know is your profit. This is important because you need to know where you are in order to figure out where you are going. To determine your profit, you need to know your total revenue. You can calculate that by adding up all your invoices. Leave out any sales tax such as GST/HST that you might have collected, that’s not your revenue, its the governments. 

Once you have your revenue amount, you will want to determine your total expenses. Expenses are categorized into common expense categories. Grab our Win Tax Season cheat sheet here for a handy breakdown if you don’t have this set up already. Armed with your revenue and expenses you are now ready to estimate your tax payment for next year.  

To summarize, the 4 numbers you need to know in order to set effective goals are:

• Revenue
• Expenses
• Profit
• Estimated Taxes 

Once you have these numbers you are ready to take a deeper dive into your money and get one step closer to setting air-tight goals for your business. 

Want a more in-depth look at how to better understand your numbers?  Check out our blog post: UNDERSTANDING YOUR INCOME STATEMENT: THE MONEY YOU EARN IS NOT THE MONEY YOU KEEP

 A closer look at your Revenue

This is an important piece of the goal-setting puzzle. Your revenue amount is a significant number, but equally important is the source of that revenue. Is it from repeat, predictable business or short-term projects? Does some of it come from selling digital assets or other scalable offers? This is crucial because you need to have a realistic picture of what your year ahead will look like. If most of your revenue is one-time project work, for example, you will have to figure out how you will replace it and top it. If taking on double the clients is not something you can do, you may consider diversifying your revenue streams, for instance, selling a digital product. Knowing this will inform your goals. Another option is to scale what you are doing by adding employees or subcontractors.

Let’s use the example of Courtney, a business coach running operating as a sole proprietor: 

Courtney’s income was $120,000 last year. In 2023 she would like to grow that to $200,000. 

In terms of her business model and how she gets paid, most of her clients are on long-term retainers. Courtney’s determined that one way she can reach her revenue goals for 2023, is by taking on more 1:1 client. Because she ran her numbers, she also knows she would need to find 3-4 new, long-term clients in order to reach this same goal. But Courtney also has her sights set on building a community and shifting from 1:1 work to 1-to-many work. Instead of adding more clients, she could set a goal for herself that involves launching an online group mastermind program. 

Courtney can now begin to work backward from her goal of increasing her annual revenue by $80,000. This means, breaking her numbers down and figuring out:

• how many times per year she is planning on launching her mastermind
• how much to price it
• how many spots she needs to sell

Breaking it down piece by piece allows for some quick math to determine what is required in order to reach that $80,000 goal.

Knowing your numbers and knowing your revenue streams is foundational to knowing which goals to pursue in the new year. 

In Courtney's example, we turned “make $200,000 in 2023”  to “make $80,000 of additional revenue from 4, week-long masterminds at $1,000 with a 20-seat capacity.”  Suddenly the goal feels manageable and achievable,

Next Courtney will determine how she will sell 4 rounds of 20 seats.  This means creating a solid marketing plan that will support her financial plan.

This is the kind of goal setting that you want to do.  Keep asking yourself “how” until you have a whole action plan around your goals.  

We’re not done yet though, just as important as setting goals is, tracking them is equally as important.  Our goals are no good if we set them and then don’t reflect on them.  In order to learn and grow as a business owner we have to look at our actual outcome relative to our goal outcome.  Hopefully we’re all surpassing our goals BUT if you are anything like us, we definitely miss the mark more often than we’d like to admit.  We’ll file it all under growth.

The Bottom Line

The more granular you can get with your goal setting the more likely you are to achieve what you set out to do. It’s not enough to think of a number you’d like to earn; you must work backward from that number to where you are today and ask yourself how exactly you will get there. Knowing your numbers gives you the specificity you need to ground your goals and plot the map to get there. 

Happy goal setting!

Interested in learning more from us?   Follow along with us through our social media accounts (find us on Instagram @growcpa) and sign up for our newsletter for more educational and fun financial content. 

Wishing you success in your business,

 - Martina + Ashli

Date published: December15, 2022

Disclaimer - The information provided in this blog is general in nature and solely for educational purposes. Readers use and implementation of the information comes at their own risk and is their own responsibility.