As a recap from last week, we talked about the importance of small businesses as it relates to employment in the U.S., we discussed our backgrounds and defined the meaning of Second Stage Companies. On today’s show we highlight the first and foundational pillar to gaining your business freedom, great financials.
An expert in entrepreneurial accounting, today’s guest is Greg Crabtree. Greg is the author of Simple Numbers, Straight Talk, Big Profits – 4 keys to Unlock your Business Potential. Greg describes The 4 Keys as follows.
1) Owner’s Salary: Why Your Salary and Distributions are Fogging your View of Net Income
While speaking about this first key Greg mentions that from an owner’s perspective one should get paid a salary for what you do and a return on what you own.
2) Profit: Why 10 Percent is the New Breakeven
For the second key it is mentioned that 10% of pretax profit indicates a good, sustainable business. 15% or more signifies the best of the best.
3) Labor Productivity: Your Key to Surviving the Black Hole
Now that distortion has been cleared through keys 1 and 2, labor productivity is the #1 thing that changes profit. This third key is a true game changer.
4) Business Physics: The Four Forces of Cash Flow
Greg mentions in this section that most growing businesses are cash chewers, so first you must ensure your business is profitable – and there are four main forces of cash flow ( in a specific order).
• Paying your taxes
• Repaying debt
• Reaching your core capital target (building working capital)
• Taking profit distributions
Interested in learning more, check out Greg’s website, Seeing Beyond Numbers, for great resources and of course his book, Simple Numbers, Straight Talk, Big Profits.
Knowing the “score” of your business is key. After all, why play the great game of business, unless you are able to know the score at the end of the day, week, month or year.
Are your financials in order? Questions or feedback? Let us know here on the blog or you can email email@example.com.
Thank you to our entrepreneurial community, we look forward to talking each week. Tune in next Monday at 5pm EST to learn more about the second pillar of business freedom, creating a detailed plan.
And remember to always have Passion for Possibilities!
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