How to measure a business's success before you buy it

What are the simple measures of business success? If you are looking to buy a business, you want to know it's on the right path, and that you can achieve your monetary and personal objectives.

Every solid business should have a clear formula for success, based on its purpose, and vision of what a “win” looks like - both for the business entity and for the owner. Invariably success will be a double-sided coin, with the tangible measurements being revenue and profits. But more importantly, it's those intangible factors, which are harder to measure, that motivate you and your staff, drive innovation, and power the business foward.

So what is success for you? Is it the lifestyle, balance, personal and professional satisfaction, the sense of control and contribution, or is it the financial rewards? While there are five core common detonators can be used to help define success, it's more about what you do with them. When doing your due diligence, look closely at each of the success factors below and see how the business rates, where the opportunities for improvements are and how you can shape each to provide you with the success factors that are important to you.

 

The 5 common key factors to business success:

1. People – those who work in, support or advise the business. Developing an environment that motivate and rewards people equates to quality output and satisfied customers. If your team is appreciated, empowered, and skilled, they are much more likely to go the extra mile when needed.

 

2. Purpose – the reason this business exists. What needs is it meeting, what competition exists, can it stay relevant and how does it define itself in the marketplace. Get specific – define and share your vision, if you don’t know what success for this business looks like, how will you take it and make it more successful?

 

3. Processes – the regular activities the people undertake to ensure the purpose is met. What intellectual property comes with the business; are there documented procedures in place? Has the business stayed up to date with technology, software and systems that allow it to operate at its optimum? And will this deliver a satisfactory return on your investment?

 

4. Resources – the physical things, the plant and equipment, buildings, the cash flow to ensure there is money in the bank to pay the bills and the team. Has the business a solid base, an appropriate inventory and assets from which to grow and succeed?

 

5. Customers – those willing to pay money for the products and services. Has the business a solid customer base, whats the mix and are they happy and loyal and likely to continue dealing with the business? Understanding the needs of customers and being able to satisfy them (now and into the future) is crucial to the businesses success strategy.

 

Always, always get professional help when doing your due diligence, but to help you get your head around what makes a business successful, read this article on the 10 things to know before you buy a business. Or see what businesses are out there looking for a new owner to take them onto greater success, check out our business for sale listings.

By Richard O'Brien - nzbizbuysell


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