Business Evaluation
Sun Tzu said, “In respect of military method, we have,firstly, Measurement; secondly, Estimation of quantity; thirdly, Calculation; fourthly, Balancing of chances; fifthly, Victory.”
This is a good way to evaluate any part of business. You should first measure what is going on. This is your base to go off of. You should measure employee performance, cash flow, sales, and more. The accounting should be audited. In other words, everything that you can measure should be. Data is the first task in analyzing anything. You must get lots of good data.
The second thing is to estimate future business. The business should forecast future sales and expenses and profits.
The third thing, after data gathering, is to calculate everything. For example, you might use ratios to determine if benchmarks are being met. You might look for inaccuracies and problems that might throw the calculations off. Many companies develop their own proprietary methods of calculating their data. Many companies have proprietary ways of determining if a business opportunity is good or not. Much of this data comes by experience that a new firm is hard pressed to get.
The fourth thing to do is to balance chances. Firms may see that they have multiple opportunities at the same time. Often, the firm cannot accurately predict what opportunity is actually best. Even with proprietary calculations, it is difficult to know. A firm may decide to test out several opportunities in test markets to get more data and they may also need to reorganize capital to make room for opportunities. This is all part of balancing out the chances that exist.
The final task of the firm is to be victorious. If the planning and strategy are correct and well thought out, the firm should be victorious.
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