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Business Owners

7 Financial Stats Every CEO Should Know Before Making a Deal


As a CEO, there’s nothing worse than going blank like a Bambi in the headlights when a potential investor or advisor asks a question for which you don’t know the answer.

For weeks and perhaps months, high-level deal representatives have been anticipating this meeting, to get a feel for you and the business, and to determine whether you deserve funding or the opportunity to join forces with a complementary company.

Not only should you know your stuff, but you should know it so well that they’re the ones running to schedule the next meeting.

Here are 7 key financial stats every CEO must know prior to deal negotiations:

  1. Target Market

Know exactly who and how many your company is targeting. Are you a recognized leader in this space? What’s so unique about your USP? Why are you the best company for the deal in terms of associated costs and risks?

  1. Growth Forecast

It’s important to know if your company and related markets are growing faster in relation to the economy. If business is tied to economic cycles, how will the company respond during unfavorable periods or to other growth barriers? A great example is a mortgage company, which is at the mercy of interest rates.

  1. Customer Profile

“CEOs should know the number of customers they have, and what percent of sales are represented by each of the top five customers,” says Gary Ampulski of Midwest Genesis, an advisory company.

Pareto’s principle holds that the top 20 percent of your clients provide 80 percent of the revenue, however you should be sure. Is there such a high concentration of a certain client type that it could pose a risk?

  1. Margins

Specifically, your company’s gross profit and operating margins. As the CEO, you need to be able to distinguish what drives cost of goods sold and overheads.

  1. Revenues

A no-brainer. Not only know these stats, but dig deeper. How much revenue is generated by your company’s top three salespeople or teams? Consider client-sales relationships. Are they protected by non-compete clauses or other agreements? Could the company survive if a top salesperson or team defected?

  1. Conversion Rate

How many leads and prospects become customers? A sales funnel description from source to close can help determine the future of the company.

  1. Burn Rate

What is the company’s profit beyond breaking even? Managing costs and monthly burn rates help to focus the contribution of materials, labor and overhead to support sales.

In addition to these financial stats, non-financials matter, too.

Over half of M&A deals fail post-close. According to Robert Sher, founder of advisory firm CEO to CEO, what’s on paper can’t translate how well the deal will go afterwards, which is why it’s also important to bring attention to integration on a practical level. Be prepared to talk about things like:

Company Culture: Discuss any similarities among companies, and how they can complement, adapt to, or learn from each other.

Managerial Bandwidth: Ensure sufficient management capacity to take on the integration process, rather than stretching to run the business.

Strategy: How does your company fit in line with another’s growth or operating procedures? Point out the usage of similar technologies, processes, or software. Contribute at least a single key strategy that can benefit the alliance.

During deal talks, it’s okay to “park” certain questions for later fact-checking, but don’t defer too much, otherwise you risk appearing ill-informed. You represent your company, and you should know the numerical and and qualitative reasons why you’re even sitting at the table in the first place. Assuming you’ve worked hard to get there, now take time to learn and consider the answers.

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