Determining a business’s success isn’t as straightforward as it appears. A company may report high revenue and have every appearance of triumph from the outside but struggle to make interest payments on substantial debt behind the scenes.
Similarly, a new business may have a small-but-loyal following with sustainable growth and a humble facade.
Capturing metrics and looking at various aspects of the business can help determine if your business is truly doing well.
Year-Over-Year Revenue Growth
Revenue growth is one of the most important manager KPIs to track. Evaluating how your business is doing compared to last year helps clarify fluctuations— especially in seasonal businesses. This metric can be validating after a slow period and showcase overall success in the business.
It’s essential to understand that rapid growth isn’t necessarily good. Slow and steady growth highlights sustainability in your business model. If you see significant peaks and volleys in your revenue, it’s time to assess what’s causing those fluctuations and make a plan to level them out.
Engaged and Happy Employees
Employee morale is another telling sign of how well your business is doing. Having a profitable business with miserable employees doesn’t indicate success.
Employee retention and engagement directly relate to productivity and performance. With the idea of “quiet quitting” running rampant, giving employees the recognition and support they deserve can be transformative for a business. Not only does this metric indicate a healthy company culture, but it could be the tipping point between you and the competition.
If employees are fleeing like rats on the Titanic, it’s time to re-evaluate your definition of success.
Customer Referrals
A high rate of customer referrals and positive reviews is another sign that your business is doing well. More word-of-mouth referrals mean fewer ad dollars spent and lower customer acquisition costs.
Similarly, if investors are reaching out to you rather than the other way around, it’s a sure sign that your business is thriving.
Stable and Low Debt and Expenses
Revenue growth is just one part of the picture. The other side of the equation is your debt ratio and expenses. The lower your debt ratio, fixed expenses, and variable expenses, the higher your profitability.
Having debt is typical for businesses. However, you should have no trouble making payments while keeping money in the bank. Similarly, your expenses should remain stable. A drastic increase in expenses indicates something wrong with your business model.
These issues may not be a problem today, but they’re a significant obstacle to long-term success.
Positive Cash Flow
There should be no question whether you can pay your bills or employees next week. A healthy business has a positive cash flow that can cover the expenses with some left over. This metric is crucial during tumultuous economic periods, like the looming recession.
Take the time to run a weekly cash flow report and determine if there are any bottlenecks or friction points. For example, delayed invoicing processes can lead to interrupted cash flow. Streamlining the process could revolutionize your business and put you on the path to success. Even profitable, innovative businesses go under due to poor cash management.
These metrics indicate the overall health of your business. Don’t despair if you find an issue; use this opportunity to correct it and set your business up for long-term success.
