Simple Metrics

Metrics are needed and can be quite simple. Steven F Despain the Wyoming District Director of the Small Business Administration (SBA) in Casper Wyoming says it quite succinctly:

"People forget the basics.  I always look at a business and ask a couple of simple questions.    How much is debt service or rent for the business location?  What is the cost of goods sold percent for their product?  If debt service is $50,000 and the cost of goods sold is 50% then they have to sell $100,000 in goods to just cover the debt service.  How many days a week and how many hours a day are they going to be open?  How much will the average sale be?  Simple enough to figure out how much they must sell per hour and how many customers they need per hour.  Add 30% to that to cover payroll and you have a good look at whether you should even consider the business.  Sometimes you have to sell the product to every man, women, child and, dog in a town every day to make it break even.   You can see that it won’t work, but they just go back to the computer and change numbers until it does work.  A candy shop is simple – how much do you need to sell each day to how many people and will the location support those numbers?  Not rocket science.  Restaurants are simple – how much is the average sale per table, how many tables, and how many times can you turn the table.  That gives you a maximum dollar sales amount and then you take the cost of goods out and see if you can cover the basic overhead with what is left.  There are always other factors, but up front you can identify which businesses have a chance to survive and which ones don’t. 

Even more telling than that are the people involved in the deal.  Are they willing to work or are they going to hire a manager and a janitor and then go out to coffee and chamber meetings all the time."