SME improvement series: Methods to measure growth capabilities
One of the most important factors in an economy’s vitality is the expansion of SMEs. Given their economic importance, SMEs are acknowledged to play a significant role in wealth creation. While the business environment is important, SMEs’ growth is also influenced by a variety of other factors. Every SME is distinct and has its own story to tell based on its beginnings, industry, location, and target market, but they all have key characteristics that allow some to outshine others.
Business growth is the increase of some aspect of an organization’s success, which usually requires increasing revenue and lowering operating costs. In most cases, a firm is regarded to be growing when it begins to sell more of its products or deliver more of its services while also generating more revenue.
However, one extremely essential factor that must be considered is the reduction of operating costs. Because of improved technology, procedures, internal and external economies of scale, a rising business must be able to reduce overhead costs as it grows. Here’s how to measure your SMEs growth:
· Determine whether or not your customer base has grown:
You should not only be looking for more customers, but also for higher-quality customers. Your customer base should be generating more revenue. This indicates that you want to gain repeat customers and build customer loyalty. The customer value should be recorded on a regular basis, and businesses should strive to increase it on a regular basis. This can be measured through customer surveys, purchase analysis, or direct feedback
· Calculate the increase in revenue:
Revenue growth is one of the most straightforward ways to track a company’s progress over time. Profit is the most acceptable measure to employ in analysing a company’s growth because profit is the goal of any firm. Profit is not to be confused with income. The whole amount of money a corporation earns is referred to as revenue and after costs are eliminated, profit is calculated. After all expenses and taxes have been deducted from income, the net profit represents the company’s earnings. A steady increase in income from the business’s normal operations over time is a positive sign of expansion. This is due to the fact that increased earnings might mean a variety of things.
· Benchmark your company against competitors:
Competitors in similar situations to your company might help you determine whether or not your company is performing well. Growth is crucial, but analysing growth in comparison to competitors defines your industry success and growth. Companies that are publicly traded are obligated by law to make their financial documents available to the public. As a result, a comparison can be easily made using financial statements. Objectivity and subjectivity come into play in the case of smaller businesses. You can conduct your investigation in secret or inquire directly if you are confident that at the very least, near-accurate records will be delivered. Also, remember to consider the rivals’ size and age.
· Keep track of new hires:
Keeping track of new hires for the year and comparing them to past years is a good idea. As a business grows, it should continue to hire more staff. This metric may also be expressed as a percentage by dividing the number of new hires in a given year by the total number of employees at the start of the year.
· Find ways to increase your cash flow:
Cash flows illustrate how much money a company makes in real terms. They are frequently used by finance experts to estimate a company’s value. To establish whether the company is still viable, compare current cash flows to previous cash flows.
· Find out how to increase your market share:
A company’s market share is its percentage of the overall value of its industry. Growth can be determined by calculating the company’s market share in several different periods and looking for growth or shrinkage in that company’s share of the market.
· Calculate the price-to-earnings ratio (PE):
The PE ratio is used to calculate the payments made for a publicly traded company’s stock. A high result from this computation indicates that investors believe the company’s value will rise in the future. A low value, on the other hand, may indicate weaker or negative growth forecasts.
It is incredibly important to self-assess your business to be sure of where exactly you stand. It is easy to get overwhelmed with everyday tasks and not realize that the business seems to be doing so much but it is not actually growing. The above points will be a guide as you look inward and make those positive changes today.