The decision to sell a business is among the most significant choices a business owner may face. Ideally, planning for a future transition should begin well before a sale is seriously considered. Why? Because reactive decisions—often driven by emotion or urgency—can lead to outcomes that might not align with long-term goals.
Consider the following example:
As the fiduciary advisor to the employer retirement plan of a rapidly growing business services company, I observed a common dynamic: one owner focused on sales and acquisitions, while the other managed operations. The company’s growth outpaced its internal capacity, and key indicators began to reflect strain—employee morale declined, hiring lagged, cash flow weakened, and customer satisfaction dropped.
These issues, visible through retirement plan metrics, signaled deeper operational challenges. Without a strategic team in place to manage growth, the owners found themselves in a difficult financial position. Ultimately, they sought a buyer with substantial resources. However, having already signed an Indication of Interest (IOI), they limited their ability to explore more tax-efficient options—an oversight that could have been mitigated with earlier planning.
The Role of a Fiduciary Advisor
Experienced fiduciary advisors can assist business owners in forming a consulting team to monitor key performance indicators (KPIs) and guide strategic decisions. This proactive approach helps maintain operational health and prepares the business for future transitions.
10 Essential KPIs for Business Owners
Monitoring these KPIs can provide valuable insights into the health and trajectory of a business:
1. 𝗘𝗺𝗽𝗹𝗼𝘆𝗲𝗲𝗘𝗻𝗴𝗮𝗴𝗲𝗺𝗲𝗻𝘁𝗦𝗰𝗼𝗿𝗲: This KPI measures the level of enthusiasm and connection employees feel toward their work and the company. High engagement is often linked to increased productivity, reduced absenteeism, and lower turnover rates. Surveys and feedback tools can help gauge employee sentiment and identify areas for improvement in workplace culture, leading to a more motivated and committed workforce.
2. 𝗡𝗲𝘁 𝗣𝗿𝗼𝗺𝗼𝘁𝗲𝗿𝗦𝗰𝗼𝗿𝗲 (𝗡𝗣𝗦): NPS is a crucial indicator of customer loyalty, calculated by asking customers how likely they are to recommend your business to others on a scale of 0-10. Customers are categorized into promoters, passives, and detractors. A high NPS suggests strong brand loyalty and customer satisfaction, which can drive organic growth through referrals and positive word-of-mouth.
3. 𝗖𝘂𝘀𝘁𝗼𝗺𝗲𝗿𝗦𝗮𝘁𝗶𝘀𝗳𝗮𝗰𝘁𝗶𝗼𝗻𝗦𝗰𝗼𝗿𝗲 (𝗖𝗦𝗔𝗧): This metric measures customer satisfaction with a specific product or service. Typically gathered through surveys immediately following a transaction or interaction, a high CSAT score indicates that your offerings meet or exceed customer expectations. Regularly monitoring this score helps identify strengths and areas for improvement in customer service and product quality.
4. 𝗖𝘂𝘀𝘁𝗼𝗺𝗲𝗿𝗔𝗰𝗾𝘂𝗶𝘀𝗶𝘁𝗶𝗼𝗻𝗖𝗼𝘀𝘁 (𝗖𝗔𝗖): CAC calculates the cost associated with acquiring a new customer, including marketing, advertising, and sales expenses. Analyzing CAC alongside CLV (Customer Lifetime Value) helps determine the profitability of customer acquisition strategies. Lowering CAC while maintaining customer growth is vital for maximizing return on investment.
5. 𝗖𝘂𝘀𝘁𝗼𝗺𝗲𝗿𝗟𝗶𝗳𝗲𝘁𝗶𝗺𝗲𝗩𝗮𝗹𝘂𝗲 (𝗖𝗟𝗩): CLV estimates the total revenue a business can expect from a customer throughout their entire relationship with the company. A higher CLV indicates that customers are not only purchasing more but are also staying with the company longer. This metric emphasizes the importance of customer retention strategies and can guide decisions on personalized marketing and loyalty programs.
6. 𝗥𝗲𝘃𝗲𝗻𝘂𝗲𝗚𝗿𝗼𝘄𝘁𝗵𝗥𝗮𝘁𝗲: This KPI tracks the percentage increase in a company’s sales over a specific period. Sustained revenue growth is a strong sign of business expansion and market acceptance. It’s essential to compare this growth rate against industry benchmarks to understand relative market performance and potential areas for scaling operations.
7. 𝗢𝗽𝗲𝗿𝗮𝘁𝗶𝗻𝗴𝗖𝗮𝘀𝗵𝗙𝗹𝗼𝘄: Operating cash flow measures the cash generated by a company’s core business operations, excluding external financing activities. Positive operating cash flow indicates that a company can maintain liquidity and fund its day-to-day operations without relying on external financing, which is crucial for financial stability.
8. 𝗚𝗿𝗼𝘀𝘀 𝗠𝗮𝗿𝗴𝗶𝗻: Gross margin is calculated as the difference between revenue and the cost of goods sold (COGS), expressed as a percentage of revenue. It reflects the efficiency of production processes and pricing strategies. Maintaining a healthy gross margin is essential for covering operating expenses and ensuring profitability.
9. 𝗡𝗲𝘁 𝗠𝗮𝗿𝗴𝗶𝗻: Net margin, or net profit margin, represents the percentage of total revenue that remains as profit after all expenses, including taxes and interest, have been deducted. A high net margin indicates effective cost management and profitability, offering insights into the overall financial health of the business.
10. 𝗙𝗼𝗿𝗲𝗰𝗮𝘀𝘁𝗔𝗰𝗰𝘂𝗿𝗮𝗰𝘆𝗥𝗮𝘁𝗲: This KPI measures the accuracy of financial and sales forecasts by comparing predicted figures to actual performance. High forecast accuracy enables better planning, budgeting, and resource allocation. It also helps identify areas where assumptions or models may need adjustment, improving future projections and decision-making.
By consistently tracking and analyzing these KPIs, business owners can gain a comprehensive view of their company’s performance, identify trends, and make data-driven decisions. This holistic approach enables proactive management of challenges and opportunities, ultimately contributing to long-term success and growth.
