Just how successful is your SME? If it were floated on the stock exchange tomorrow, would potential investors be trampling over their own grandmothers to get a slice of the action, or would the interest be as sparse as a pale and sickly sales order book?
If your own SME ticks the majority of the following boxes, pat yourself squarely on the back – things are shaping up nicely:
- A strong order book. Ultimately, a solid business is one that courts more sales than its capacity can even handle. A successful company will generate robust sales and a large proportion of these will preferably come from repeat clients.
- A cache of well branded products/services with strong USP. A successful SME is one that does more than go toe to toe with competitors of all shapes and sizes. It boasts a well established brand, and offers a product range that is positioned with unique appeal, courting much respect from its target client base. Ideally, the company will have at least one ace product up its sleeve – for example a small niche which it has monopolized through a unique product that is guarded by copyrights or patents.
- Good price earnings growth. The PEG is a key investment metric that growth investors look at when analyzing companies. If your SME is demonstrating earnings growth year on year, regardless of competitive or economic stresses – it’s a sign of a strong company that’s growing nicely. There are several yardsticks against which to measure your earnings, including industry averages or even against the UK’s GDP. Leaving aside the odd wobble, a strong company is one that will announce earnings growth in most years.
- Experienced & talented management. The people in charge of a company’s strategy will ultimately shape its performance. Strong companies have good management teams in place.
- Motivated and stable workforce. An SME may only have a clasp-full of employees, but the motivation and desire of these employees is key to the company’s performance. A harmonious, well balanced and adaptive group of employees will contribute to a richer and more productive corporate culture that suffers low staff turnover.
- Controlled gearing. Traditionally, an attractive SME is one that has moderate gearing that’s below 50%. However, in some instances and during low interest economic climates, a skilled management team may be able to fuel rocket like growth on the back of higher net gearing levels.
- Balances stakeholder responsibility with a commitment to maximize profit. A successful SME will be able to balance its obligations to various stakeholders while maintaining profits. Balancing ethics with capitalism can be tricky, but companies that provide an operation where customers, employees, suppliers and shareholders are all fairly catered for tend to achieve the best growth over the longer run.
- High Return On Capital Employed. ROCE is a measure on just how efficiently the capital invested into the business is being put to work. There is always a risk associated with business capital investment, and the return on this capital must be significantly higher than any risk free returns available elsewhere (eg through guaranteed bank deposits).
Working on improving these factors will help you create a more successful SME that gives all stakeholders what they need while banging out a bigger profit year on year.