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4 Seeing Beyond the Numbers

Marketing podcast with Greg Cabtree (Click to play or right click and “Save As” to download – Subscribe now via iTunes or subscribe via other RSS device (Google Listen)

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Traditional accounting practices, or at least the ways that many business owners interpret the data from those practices, often lead business to the brink of extinction.

Far too often business owners trick themselves into believing their business is healthy, when in fact it’s one bad month away from disaster. Or, they become so focused on beating the IRS in the tax game that they miss the entire point about building wealth.

In this episode of the Duct Tape Marketing podcast I visit with Greg Crabtree, a CPA who’s spent most of his career helping business owners see beyond the numbers that blind and focus on the simple numbers that help unlock business potential.

Crabtree’s book – Simple Numbers, Straight Talk, Big Profits!: 4 Keys to Unlock Your Business Potential – should be required reading for every business owner on the plant.

In Simple Numbers you get some very practical talk about how to manage your business based on the numbers that count.

Today’s break even is 10% Net Profit.

You get a salary on what you do and a return on what you own. So many business owners confuse profit with revenue or treat profit as salary. A salary is what a job pays. If you’re not focused on creating a net, after tax, after salary profit then all you’ve created is a job.

Taxes have become the tail that wags the dog. Business owners jump through tremendous hoops in order not to pay taxes – including doing things that rob from the future of the business. Crabtree advises that we need to stop focusing on the tax implications and focus on the true financial dynamics of the business. We need to take the energy we spend on not paying taxes and go make money.

Another crucial number that Crabtree reveals is something he calls the Labor efficiency ratio – Hiring people can either lift a business or sink it. But, good labor is a lever if you understand how to calculate what every dollar of labor produces in terms of profit.

You must understand how to hold your labor cost accountable for profit. Once you can do this you can set what you need in terms of additional revenue and additional profit for each hire.

Crabtree has created a number of tools for better understanding both labor cost and profit.

The last issue we discuss is cash flow. Many business owners struggle with cash flow. The thinking is that I must manage cash flow before I can think about profit. I believe and Crabtree certainly supports this notion, that if you focus on profit, you’ll fix cash flow.

The real problem with cash flow is that people don’t get cash flow considerations in the right order. On average 40% of your profit must be paid in taxes – that needs to come out first. Far too many businesses sink on this number because they consume based on total profit.

Simple Numbers is a very accessible read and just may do more towards helping business owners come to grips with the right numbers and right priorities than any other book on the subject. Go get it and make everyone in your organization read it!

Then start having discussions about labor productivity and profit at your next all hands meeting.

25 Why Profit Should Be Your Most Important Goal

This time of year many business owners revisit goals and objectives for the coming year. I know that I do and it’s a practice that helps me focus on what’s really important all the way to the task level.

Profit

Mr.Thomas via Flickr CC

In all my years of working with small business owners and suggesting they do the same one word hardly gets brought up in the goal setting conversation and that word is profit.

I know every business hopes in the end to make a profit, but few make it a measure of success. I also know that may times small business owners look at what they pay themselves as profit, but here’s the problem with that. What you pay yourself is what you get paid for doing a job. Profit is what you gain from the investment of your time, talent and in some cases blood and guts.

Without profit what you’ve created is a really, really hard job. In fact, one of the saddest things I encounter is a small business owner working their tail off with no profit to show and compensation far below what someone else would ever suggest they do the work for.

So many businesses get fixated on growth, but revenue growth without profit is simply more work. Set goals for profit levels and make decisions based on growing profit.

Profit is the measure of the return on your investment. Profit is how you build something you can sell. Few others are crazy enough to buy your job, but profit is the demonstration that yours is more than a job.

You must start to make profit, over above your fair market wage, a primary goal for the immediate and long term future health of your business.

My recommendation is that your pick up Simple Numbers, Straight Talk, Big Profits!: 4 Keys to Unlock Your Business Potential

It’s a great way to start understanding this important topic in plain English.