Ready to sell or not, it’s important to know your business metrics
Even if you don’t plan on ever selling your business, or at least not anytime soon, it’s important to know your business metrics. Your business metrics are the numbers behind your business.
Potential buyers will want to know your numbers. Why? Because they want to ensure their investment is as low-risk as possible. Supplying potential buyers with valid and detailed metrics will not only keep the acquisition moving forward, but also fuel a more positive and seamless acquisition experience.
Yes, your business may be small, shiny, and new now and you may be wondering why anyone would want to buy it, at this point. However, it’s important to keep the future in mind with thoughts such as:
- What is my business going to look like ten years from now?
- How big will it be?
- What happens if I decide to sell it then?
- Will my business be ready for sale?
If you haven’t been keeping track of your business metrics, then the likely answer to the last question is no!
So, what are business metrics? What are the most valuable ones to potential buyers and how do we ensure our business is ready for sale? Our latest blog from our pro Virtual CFO, gives you an opportunity to dip your toes in the business metrics pool.
What are business metrics?
Business metrics, or key performance indicators (KPIs), display a measurable value which shows the progress of a business towards its goals.
There are hundreds of examples of business metrics. The ones you should track, depend on the particular business and specific goals.
It’s important to keep in mind that tracking business metrics which may be irrelevant to your business and goals, could be a waste of your valuable time. With this in mind, aim to keep your focus on metrics which will directly show how your business and specific goals are tracking.
A Virtual CFO can help you identify which metrics are the most relevant to your business.
Which business metrics are the most valuable to buyers?
We’ve told you that potential buyers will want to know your numbers, but which numbers will they want to know?
There are many business metrics attractive to potential buyers. However, the most valuable seem to be:
- Revenue Growth
- Gross Margin %
- Customer Acquisition Cost
- Customer Lifetime Value
As we touched on earlier, it is also important for the business metrics you track, to closely pertain to your specific business.
For example, if you run an online based business, then one of the best indicators of the success and reputation of your business, is the monthly website traffic.
You can use a free marketing tool such as Google Analytics to track this.
How are business metrics tracked?
Depending on the metrics, you can track them in many ways, with some being easier to track than others.
Looking at the most valuable business metrics to potential buyers, we provide a brief explanation on tracking:
- To calculate your revenue growth, divide current year revenue by last year revenue. Subtract 1 from the result and multiply by 100% to convert to a percentage.
- The gross margin % equals total sales revenue, less the cost of goods sold divided by the total sales revenue multiplied by 100.
- To calculate the customer acquisition cost, you divide the total amount spent on customer acquisition by the total number of customers acquired in a given period.
- Finally, for the customer lifetime value, you multiply the average value of a sale by the number of repeat transactions and the average retention time in months for a typical customer.
As you can see, even if you don’t plan on ever selling your business, or at least not anytime soon, it’s important to know the numbers behind it.
Not only will your business be ready for sale down the track, you will have a clear picture of the numbers behind your business and how your business goals are tracking.
Tracking and managing your business metrics, or even knowing where to start can be a tricky business!
Let a Virtual CFO take the pain and stress away. Contact proCFO today.