Around 60% of small business owners are concerned about getting through inflation in the United States.
With uncertainties in the market, people are doing what they can to prevent their dreams from going under.
If you want to buy a small business and ensure its success, there are a few metrics you should start tracking.
Keep reading to discover the most critical metrics that could indicate signs of trouble up ahead!
1. Total Sales Revenue
One of the most important metrics, when you buy a small business, is your sales revenue.
Sales revenues include the sum amount of money you gained from selling services or products. As you start collecting data on sales, you can compare years against each other and discover issues in the company.
The best part about measuring this metric is that there aren’t any complicated formulas. You can add the total revenue over a specified time and subtract your expenses. The number you produce is identified as your net profit.
You’ll want to check this metric monthly, quarterly, and annually.
2. Net Profit
Getting your net profit number from your sales revenue is helpful, but there is more to this metric.
Net profits are often referred to as the bottom line or net income. The profit refers to the amount of cash you have after expenses have been covered. Interest, taxes, and operating expenses are a few examples of what will influence your net profit.
Many business owners struggle with this formula, although it’s simple when they account for payroll.
3. Lifetime Value of Customer
Reviewing customer lifetime values (LTV) can help when you’re considering buying a business.
Trends are constantly evolving and what may seem like a great investment opportunity might be short-lived. You can find excellent businesses for sale here to explore your opportunities. These businesses use the LTV to determine how much money each customer should spend in their lifetime.
To calculate this, you must multiply your average value for purchases by your total purchases and average customer length. Knowing this metric can help you discover if a company has already peaked or if it will remain profitable.
4. Customer Satisfaction
Although you can’t pull up charts with everyone’s opinion, you can still measure a company’s customer satisfaction
Surveys are a great way to get feedback from customers and determine your success rate. You can send a simple and short survey with a scale from 1-10, rating how likely or unlikely they are to continue buying. The total average will become your net promoter score and can indicate if the company has seen better days.
Are You Prepared to Buy a Small Business?
When you start searching for opportunities to buy a small business, you need to consider every detail.
Knowing what questions to ask when buying a business will ensure you invest in the right company. If you overlook these metrics for some time, it can be difficult to pinpoint issues. The more you understand a company’s metrics, the easier it’ll be to increase profit.
Don’t be afraid to speak with a financial advisor or teammate if you get lost in the numbers.
Make sure you check out our page for more content about buying a business and keeping your finances in order!