Because cash flows will probably be less without targets, now and in the future.
If ownership and management develop a strategic and financial plan that they believe will achieve their profitability, cash flow, owner distributions, and growth in business value goals, they know their targets. They also know whether they are on target to be successful if they meet those goals. If you have not established financial targets or goals, you probably haven't decided on the results you need to reach profitability, cash flow, owner distribution, and growth in value goals. Unless you are lucky, at best you will manage inefficiently. This includes not taking appropriate action on a timely basis to act on favorable trends or to reverse negative trends. In either case, you lose cash now, and in the future. Well run, profitable businesses are worth more than less profitable, poorly run businesses. At worst, you could miss negative trends that could severely restrain the growth of your business, or even make it insolvent – because you wait too long to take corrective action. This results in less cash now, and in the future when you dispose of your interest in your business.
As the business operates, management and staff stay focused on the key financial areas that are important to achieving the financial targets. When people have targets to reach, they can measure progress toward achieving your goals. Responsible people can then take appropriate action to adjust targets, to act on favorable trends, to correct unfavorable trends, and even to change direction if the current path is no longer profitable enough.
Of course, the same principals often hold true when you do not plan your personal finances adequately.
Failing to plan usually results in planning to fail (at least to some extent).
Please call Jim Blowers at (518) 344-6087 if you would like to learn more about how my Firm can help you to plan your business's finances, and monitor the business's progress towards achieving those goals.