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Forecasting Growth: 5 Predictive Metrics to Consider

Forecasting may not seem like a high priority to small business owners who are focused on the daily hustle needed to build and upkeep business, but forecasting is important for planning long-term strategy. According to an INSEAD research study, “Correctly recognizing emerging changes in the business environment and accurately predicting future ones are prerequisites for future success.” Furthermore, few small business investors will be willing to fund your growth in the absence of a set of hopeful and well-calculated forecasts. Even if your forecasts are dim, the predictions can help you identify areas to tighten up or expand sales.

Although making informed predictions is not as easy as staring into a crystal ball for answers, it doesn’t have to involve arduous hours of crunching numbers. Take the five simple indicators below into account to help you determine what type of year your small business should have in terms of growth.

1. Earnings

Financials are our first pillar in The Five Pillars of Business Freedom(SM) and your business’s greatest indicator of growth potential. Accurately tracking financial data plays a crucial role in monitoring the overall health and stability of your company. When determining potential small business growth, owners should also look at the ability to generate and manage cash, not just the ability to make a profit.

Only consistently successful businesses should begin to think about growth in the coming year; those that are not, should focus on increasing revenue first. Consider whether your business is poised to continue to profit significantly after fixed expenses and unforeseen costs this year. Money is the life source of a small business, so there must be enough coming in to fuel progress.

2. Operations

Does your business function like a well-oiled machine or are procedures still being created on-the-fly? Growth is more likely to occur when there are established processes in place to manage workloads and tackle issues efficiently. A lack of structure could also hinder a business’s longevity by making it non-transferable to new management. It’s so critical that the system remains effective without constant supervision from the owner—a tree needs more than one strong root to grow tall.

3. Workload

Struggling to keep up may be a positive sign if it is a result of increased customer demand. But more work doesn’t always translate into more revenue; consider whether an increased workload is a result of doing more business or merely clean up from inefficient business practices and processes. If it is the former, make sure to hire new employees as needed—your business will require more talent (and not just any talent, but  the right talent for your culture)  to achieve sustained growth.

4. Social Media Traffic

Unless your business happens to be weathering a crisis, more social media traffic generally reflects a growing potential customer base. In fact, a 2013 study from the University at Buffalo School of Management found that when customers engage with a business through social media they contribute about 5.6 percent more to the firm’s bottom line than customers who do not. Even if an increase in followers doesn’t immediately generate sales, it does demonstrate interest and opens doors for future communications. When your followers interact with your brand by commenting or posting online, take it as a sign that your business is beginning to bloom.

5. Feedback

Even though your entrepreneurial vision and optimism likely transcend other people’s opinions of your business, their impression of how things are going could in fact be an accurate depiction of how things are going. Positive customer service experiences have been linked to increased profits, so evaluate the satisfaction level of your customer base and employees and take their feedback seriously. Even if all other signs point to growth, your business still needs steady love and affection for healthy development.

Is your business ready to grow?

Learn how to stop working in the business and start working on the business with the help of Evolution Capital Partners. Find out more about our process and criteria here.

 

Posted by: Jeffrey Kadlic A co-founder and managing partner at Evolution, Jeffrey has spent the past 15 years as an investor and private equity professional with a true passion for working with dynamic small businesses. @kadlic

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