The 10 indicators to look at before investing in an SME
Growth, margins, cash, debt, customer concentration: how to read each indicator, and what it does not tell you.
No indicator is enough on its own. Together, these ten markers give a faithful picture of an SME's health and trajectory. For each one, look at how it changes over several periods rather than at an isolated figure, and compare it with companies in the same sector.
Revenue growth
Steady or irregular? Driven by new customers, or by a few exceptional, non-recurring contracts?
Gross margin
What is left after the direct cost of sales. A margin that improves with volume is a good sign.
EBITDA and EBITDA margin
Operating profitability before depreciation and amortisation. If it is negative, the company is in an investment phase: you then need to understand the precise path to profitability.
Cash and months of runway
How many months can the company last at its current rate of spending, without new funding?
Working capital requirement
The money tied up in inventory and in customer payment terms. It can absorb a large part of the growth.
Debt
The amount of debt relative to the company's ability to generate cash.
Customer concentration
What share of revenue do the largest customers account for? The higher it is, the harder the loss of a single customer hits.
Share of recurring revenue
Multi-year contracts and subscriptions make the business more predictable than one-off sales.
Retention
Do customers stay? Do they buy more over time, or less?
Order book or sales pipeline
What is signed or under negotiation for the coming months.
These indicators inform a decision; they do not make it for you: two companies with the same ten figures can deserve opposite decisions depending on their sector and stage. Investing in an unlisted SME carries a risk of capital loss.