In our recent podcast with Greg Crabtree, speaker, author of two books, entrepreneur, and financial expert. Greg has used his entrepreneurial skills to develop Crabtree, Rowe & Berger, PC, a CPA firm focused solely on the needs of entrepreneurs, helping them build the economic engine of their businesses.
Greg shares how his BIG IDEA works with entrepreneurs worldwide in a broad range of industries, Crabtree has simplified financial reporting and empowered all entrepreneurs to take ownership of their finances. He has pioneered a revolutionary metric for driving business profitability: measuring labor efficiency and developing simple benchmarks for company, team, and individual performance.
“Breaking away from an accountant mindset and into an entrepreneurial mindset” was one of the biggest shifts for Crabtree in shifting into his consulting practice. Throughout our podcast, and deeper into his book (link here) Crabtree elaborates on the Four Keys to Unlock your Business Potential and how the return on the invested capital is the golden ticket.
Here are our top four takeaways from our podcast (link here) with Greg Crabtree
Eliminate Distortion: Owner Salaries Matter
Greg says that you always need to account for your market based wage when looking at your profits.
Net income (pre-tax) with you getting paid a market based wage. Don’t take distributions for consumption out of the business. When you set your lifestyle based on distributable profits, you are doomed to struggle.
“If you’re not paying yourself as an owner, a market base wage for the job you’re doing in the business, you’re lying to yourself about the profitability of the business. And so this requires the business to to look at a true net profit number based on truly what your comp ought to be, and probably even to the high side of the market.”
Set Profit Targets: +50% of Invested Capital
Profit matters more than you think. Crabtree goes on to explain how to set the right profit targets for your business.
Crabtree warns that, “If you’re not at a 50%, return on invested capital minimum, that’s what we established as the minimum acceptable return of a viable business that if you’re below that number, you are at risk. You are at risk for market disruptions like COVID, you’re at risk of competitive disruption.” According to his research “the reality is 50 percents the minimum, we see many business examples of that return on investment of 75 to 100%. Some industries enjoy as much as a 200% return because they’re a low capital requirement business”
“If you have a 50% return on capital, double down on your business”, Crabtree says. In his years of working with businesses across the globe, he has seen that many companies and entrepreneurs have been advised to diversify their assets. He advises against this.
We asked him what the best way, in layman’s term is to calculate your profit, and Crabtree gave us this simple formula:
Pre-tax profit/Invested Capital (business assets- business liabilities)
Using this model helps to insulate your business from risk. Greg says that many businesses return between 75-200%.
Fertile Ground is in Knowing your Operating Parameters and Executing
Discovering your operating parameters, and then having the means to execute within them is key to scaling your business.
Crabtree notes that “many people will tell you once you start growing a successful business that you ought to take this money out of the business and you need to diversify. Well, maybe to a point but let me ask you this: if your business is returning 75 to 100%, why would you do that until the business has reached its maximum potential?”
He advises that we “hone in our focus on what really matters rather than trying to deal with everything in a lot of that stuff that doesn’t matter in that process. Where else are you going to get 75 to 100% return? nowhere that’s legal”
Return on Invested Capital is a Key Performance Indicator for Entrepreneurs and Privately Held Businesses
According to Crabtree, return on invested capital is an uncommon KPI in the private industry.
In his first book Simple Numbers, Straight Talk, Big Profits!, the “big idea is really helping entrepreneurs understand the power of the investment returns to the privately held business”. In this book, Crabtree used client data to outline the KPIs start-ups and small businesses should be using to make good business decisions and grow their profits. Crabtree notes that his findings published in this book work for about 70% of businesses… but what about the other 30%?
In his second book, Simple Numbers 2.0: Rules for Smart Scaling, Crabtree expands on the power of simple numbers and walks us through how to take business to the next level and reveals the growth potential going unnoticed in your balance sheets.
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In his presentation, Crabtree provides some thought provoking questions, sample P&L Sheets, and tactical tips for smart scaling.
About Greg Crabtree
Greg Crabtree is a speaker, author, entrepreneur and financial expert. Crabtree has used his entrepreneurial skills to develop Crabtree, Rowe & Berger, PC, a CPA firm focused solely on the needs of entrepreneurs, helping them build the economic engine of their businesses. Working with entrepreneurs all over the country in a broad range of industries, Crabtree has simplified financial reporting and empowered all entrepreneurs to take ownership of their finances. He has pioneered a revolutionary metric for driving business profitability: measuring labor efficiency and developing simple benchmarks for company, team and individual performance.
In 2011, Crabtree published his first book “Simple Numbers, Straight Talk, Big Profits,” in which he shares his core principles of how to turn your business into a wealth building engine. He is currently working on his second book, “Simple Numbers 2.0.”
Crabtree’s community service includes serving as Boys and Girls Clubs of America National Area Council Member, Entrepreneurs’ Organization Global Board (2006 to 2009), ALS Association of Alabama, Boys and Girls Clubs of North Alabama, Atlanta chapter of The Entrepreneurs’ Organization (EO) past board member. Crabtree is a frequent speaker at EO Chapter events, EO’s Accelerator Money Day program and the U.S. State Department’s New Beginnings program for international entrepreneurs.
Greg and his wife Debbie have four children. Greg is an avid golfer and enjoys playing historic golf courses whenever his travel plans permit.