Science of Business Wealth

Small Business and Productivity

Improving Operating expenses

The second of the 5-chapter Science of Business Wealth financial performance evaluation is profitability growth.

Practitioners of our Business Health Assessment mention “I can show the results but how can I help the improvement process”. This diagnostic evaluation process is aimed at helping you through that journey.

Remember you goal is to identify where improvement or opportunity lies. The business owner will know how to take your analysis and make it actionable.

Profitability growth is measured by the increase in profit per revenue $ from one period to the other.

The core components of profit performance is:

  • The performance of gross profit from the previous period to the current period.
  • The way operating costs have behaved from the previous period to the current period.

Profitability is considered in relation to revenue growth.

The question is “has profitability improved irrespective of whether revenue has grown or declined”

Profitability growth is a good indicator of how scalable the business is.

This part of the diagnostic series deals with operating cost performance.

Tool kit

  1. Segment the operating costs into Fixed and variable costs
  2. Horizontal analysis
  3. Vertical analysis
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Improving Gross Profit

The second of the 5-chapter Science of Business Wealth financial performance evaluation is profitability growth.

Practitioners of our Business Health Assessment mention “I can show the results but how can I help the improvement process”. This diagnostic evaluation process is aimed at helping you through that journey.

Remember you goal is to identify where improvement or opportunity lies. The business owner will know how to take your analysis and make it actionable.

Profitability growth is measured by the increase in profit per revenue $ from one period to the other.

The core components of profit performance is:

  • The performance of gross profit from the previous period to the current period.
  • The way operating costs have behaved from the previous period to the current period.

Profitability is considered in relation to revenue growth.

The question is “has profitability improved irrespective of whether revenue has grown or declined”

Profitability growth is a good indicator of how scalable the business is.

This part of the diagnostic series deals with gross profit performance also known as above the line performance.

Gross profit diagnosis follows a similar structure to the revenue diagnostic with the key difference is that we include the way gross profit behaves within the different forms of revenue segmentation.

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Good Growth diagnostic evaluation

Basic diagnostic methods

  1. The only 4 ways to grow
  2. Segment according to the 80/20 rule
  3. Segment according to customer behavior (Customer retention)
  4. Purchase frequency
  5. Revenue by product or service

 

The first of the 5-chapter performance evaluation is revenue growth.

Practitioners of our Business Health Test mention

“I can show the results but how can I help the improvement process”.

This diagnostic evaluation process is aimed at helping you through that journey.

Remember you goal is to identify where improvement or opportunity lies. Management will know how to take your analysis and make it actionable.

Growth is measured by the % increase in net revenues from one period to the other.

The concept of good growth measures how growth impacted profitability and balance sheet performance.

Good growth is reflected where the growth produces improved profitability with the same of less working capital per $ of revenue

Notice that we say good growth is the combination of how growth be it up or down influences the income statement (profit) and the balance sheet (working capital)

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Mick Holly & Andre Gien

Wealth Scientists

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