Management consultant Peter Drucker famously said “If you can’t measure it, you can’t manage it.” Bill Billingsley is a business broker and owner of The CBB Group, Inc. After years of working with small business owners, Bill has found that owners often get caught up working in their business rather than on it. As a result, he says, most owners don’t take the time to look at the metrics that drive their business and how they affect the value of the business.
Bill has identified seven key metrics that are common to most businesses. These are the metrics that every business owner should be managing because they are also what business buyers tend to focus on. We’ll discuss each of those metrics and explain why they matter in the next two posts.
Here are the top three metrics for business owners to measure and manage.
This is the metric that most business owners looks at each month. Buyers also look at profitability as a percentage of revenue. This allows a buyer or an owner to evaluate and compare the company against its competitors in the same industry niche regardless of size.
Knowing what your gross margin is on a monthly basis and the major components that make up that margin allows business owners to remain focused on managing the costs of goods sold (or services provided). Having a gross margin that meets or exceeds industry averages is one of the top drivers for increasing value that a buyer will pay for.
Tracking revenue month over month versus the same month in prior years is essential to evaluating your current marketing and advertising strategies as well as sales force performance. Buyers will look for positive trends, seasonality and size when valuing a company.