A sound financial strategy is the foundation for a successful business venture, and for this reason we’ve created a series about the different aspects of building a financial plan. This week’s topic: the performance review.
Reviewing the financial prospects of a business requires reviewing more than just the financial statements. Understanding the strategy, the team, the history and the competitive landscape are some of the other critical elements.
As a well recognized Northwest Indiana Bank, Horizon Bank encounters many businesses and we’ve learned to evaluate several important characteristics when determining the financial viability of a company. If you are making your own investment decisions, we recommend conducting similar performance reviews.
- Strategy. What is the opportunity this company is pursuing and how is its approach different from others. What distinctive feature of its product or pricing will allow it to beat competitors?
- Team. What is the background of the managers? What experiences do they have to prepare them to effectively run the business? Are they trustworthy and do they have a reputation for fair business dealings?
- History. How long has the business been active? Historical presence helps build client relationships and brand value which may not be captured on the balance sheet but are still valuable assets. How did the business fair in previous challenging economic environments?
- Competitive landscape. What is the competitive intensity in this industry? How well capitalized are competitors? On what basis do they compete – price, location, service? How does your potential investment compare on these competitive dimensions?
Assessing a business as a potential investment requires looking beyond just the numbers and strategy, team, history and competitive landscape are good places to start.