It’s important to reflect on your business and understand if you’re doing the right things, if you’re making the right decisions, and if your business is a good business. There are seven steps to evaluating any business. And what’s very important about these seven steps is that they give you some guidance as to how you’re performing right now, but it also gives you guidance if you were to consider buying a business if you were to consider investing in a business.
This article looks at seven simple steps to evaluate any business, including your own. These steps can be used to judge businesses to determine how successful they are and how well they are performing. Use these steps if you’re looking to purchase a business, create a joint venture, or simply if you’re going to be working closely with another business because they will give you good indicators of where the business stands and how successful it is.
1. Does the business have a compelling fan base of clients?
Are the clients raving fans, do they talk about the business, do they talk about your products and services? If the answer is yes, then they have brand insistence, and people will only buy those products and services from that business. They love the business and want to do business and buy products from the business. This is an indicator of a really good business. If it’s your business, and you want to build up your fans, you can ask clients to do video reviews for you, leave you reviews on Google and on Yelp, and they will do it. Ask them to talk about your products or services, how great they are, or how great the business is in general.
2. Does the business have a marketing process to acquire new clients?
Can you accurately determine what it costs the business to acquire a new client? You need to know that the business has a predictable and sustainable way of acquiring new clients that work on a continuous basis. This means that they have a system for going out and getting new clients, that the system is profitable, and that they’re turning advertising into profit.,
3. Does the business make a profit?
A lot of businesses will say that they’re not making money right now, but things are going to be great in a year or two once they make a few improvements, and that they’re a really great business. Remember that the purpose of a business is to create profit. If a business does not create profit, then that business has a shorter life span because eventually, it will run out of cash.
You might be thinking, what about Silicon Valley startups that lose tens of millions of dollars only to eventually turn around and make billions down the line. It’s true, but it’s a strategy that rarely works.
4. Does the business keep the profit?
If the company is making a profit, check to make sure it actually sells products or services, that it pays its suppliers, that it pays its staff, as well as anyone else associated with it that needs to be paid. If the answer is yes, then you have a business that is retaining cash and could be doing very well.
5. Are there inefficiencies that can be saved by purchasing or remodeling the business?
Let’s say you’re looking to purchase a business, and it’s losing £10,000 a month, but they’re doing £100,000 a month in sales. If you were to buy that business and merge it with your current business, and then cut some of the staff, you might be able to turn that £10,000 monthly loss into a £20,000 monthly profit. Now, that is a good opportunity. Are there inefficiencies in your business that you could work on so that you’re able to retain more cash?
6. Does the business have any debt, or could financing be added to scale it?
Sometimes a business needs financing to scale it and turn it into a huge success. Let’s say you have found a business that doesn’t have any debt, is making £50,000 a year in profit, and it’s retaining cash. That’s all great, but it’s a very small business because it’s never been scaled. If you were to purchase the business and put some more money into things like client acquisition you might be able to turn that £50,000 a year profit into £100,000, or even £200,000 in annual profit.
7. Is the business dependent on one person, one company, one supplier, or one employee for its success?
You want to know if all of the revenue if all of the ideas that make the business successful are a result of the work of one main person within the business or one person or entity outside the business because if that one person, company, supplier, or employee were to disappear one day, it will have a dramatic impact on the business’s profit. If a business only has one supplier, what happens if they’re not able to supply the business with what it needs suddenly?
Use the seven steps to see how the business stacks up. Be brutally honest with yourself because there’s no point in lying to yourself. You want to change your business for the better, so really look at where you can make improvements. If you’re successful, and if you’re able to give yourself positive grades on these seven steps, then you might be able to use the information for future acquisitions that will allow you to expand and grow in your business in the future.