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

How to measure a business's 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. But how can you tell? What are the simple measures of business success? 

Success can look different depending on a business’s goals. Invariably, success will be a double-sided coin with tangible and intangible factors. Tangible factors are usually based on revenue and profits, which are easy to measure. However, the intangibles are much harder to measure. These are the things that motivate you and your staff, drive innovation and power the business foward.

Whatever the measures, a solid business should have a clear formula for whatever success looks like, based on its purpose and vision – remembering that purpose and vision apply to the owner as well as the business entity.

So what does success look like to 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 common factors that 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 the success factors that are important to you.

The 5 common key factors to business success:

Purpose – This is 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. The vision should be specific – well-defined and shared. If you don’t know what success for this business looks like, how will you take it and make it more successful?

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

Resources – These are 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. Does the business have a solid base, an appropriate inventory and assets from which to grow and succeed? And what condition are they in?

Processes – These are the regular activities undertaken 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?

Customers – The people willing to pay money for the products and services. Does the business have a solid customer base? What’s 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 in the future) is crucial to the business’s success strategy.

When doing your due diligence, remember, professional help is always available and these professionals do it as their day job. However, when it comes to your personal goals for success, only you can make those decisions. So be as clear as you can about what success looks like to you.

If you are not sure on the business you are looking at, then check out some other business opportunities.

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