6 Key Business Performance Metrics
Business performance is a fundamental component of long-term success. It is also a priority area we look at when working with multi-unit franchise owners in developing a succession strategy because a core component of succession planning is looking at overall business operations. If the business is not performing well, ultimately, your options are limited in terms of gifting, selling, growing, or transferring to next generation owners.
Multi-unit franchise owners, like many other business owners, often analyze the success of the business based on profits generated. However, ensuring success as you consider the big picture vision goes much deeper. It dives into the layers responsible for driving revenue, profits, and business value. It is here where a succession strategy is a critical piece of the puzzle as performance is influenced by teamwork, leadership, structure, and strategy. Enhancing business performance not only builds value, but it also benefits the family members, employees, managers, vendors, or other relationships tied to the franchise. Whether good or bad, you and your business are in a position of influence that impacts many lives who depend upon income or a service/culture to support their lifestyle.
Working with multi-unit franchise owners to cultivate structures and cultures that create predictability of profits, we analyze these top six performance metrics:
- Profitability – The key security and lifestyle performance driver for owners, successors, and senior management and a core component to the business valuation formula. With sustained profitability an owner can accumulate wealth above and beyond the needs of the business, develop financial independence from the business, and contribute to the community. This freedom allows the owner to develop an exit strategy based on their desires and goals rather than being bound to the business for financial security.
- Capitalization – The next most important component because a business must have the resources to continue operations. Businesses depend on capitalization—in the form of cash, receivables, equipment, facilities, etc., to deliver goods and/or services. A lack of deliverables prohibits performance and succession. Capitalization is the engine of the business machine.
- Liquidity – A component of capitalization is worth mentioning as a separate metric because during hard times cash is king. Liquidity speaks to the unencumbered access to cash. The availability of cash provides immediate fuel to keep a business running through challenges, such as ownership transition, economic downturn, or political changes.
- Cash Flow – Positive cash flow is a characteristic of healthy profitability and maintains the liquidity and capital of your franchise business.
- Customer Satisfaction – Multi-unit franchise owners are in the customer satisfaction business. Successful business performance depends on satisfied loyal customers and the ability to create ongoing demand for your franchise offerings.
- Employee Satisfaction – When it comes to being successful, unique franchises, incentives, hot merchandise, locations, buildings, and processes are not the total answer. The people involved in production, administration, and marketing represent an organization’s most influential resource. Employee motivation can either fuel a business or weigh it down.
There are many additional business performance metrics that also measure success, but these are the top six. Performance mediocrity is not an option in succession because the predictable influences and distractions associated with transferring ownership and management challenge the survival of an average or struggling operation. Underperformance is a threat to succession because performance success is the predicate to succession.
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