Secrets from the Science of Business Wealth

 

Good to Great by Jim Collins is a great book that explains “Why Some Companies Make The Leap and Others Don’t”.

The challenge for small business owners is much of it may not be relevant as the average size of the 28 companies in the study was over several billion dollars.

The startling fact is 50% of small businesses fail within their first five years. We wanted to know how to avoid that failure and what successful owners did to consistently grow their business.

So we launched our own unique multi year study of 164 small businesses whose revenues ranged from $500,000 to $10,000,000.

 

Out of this population 34 demonstrated the following success criteria:

  • Achieved consistent growth over a 5 year period of no less than 15% and most importantly no MORE than 60%
  • Made more profit for each successive year
  • Improved their operational cash flow each year
  • Their owners worked less and IN their business and more ON their business each year
  • Paid themselves more money with each growth year

 

We conducted extensive interview and diagnostics with the owners to identify a set of disciplines they all exhibited and consistently applied:

The 5 disciplines are

  1. Good Growth
  2. Making Money
  3. Cash flow Management
  4. The Power of You
  5. People and Process

 

The good growth discipline

These successful companies had a consistent growth rate of 20% per year. Critically, they demonstrated the good growth rule:

The Good Growth Rule

Good growth occurs when gross profit percentage increases more, or at least as much as the growth in revenues!

 

The second discipline is making money

Successfuls know how to make money. We contrasted this with the poorer performers (we term them the others). Their owners worked as hard if not harder than the successfuls yet they made less profit and had little to show for itat the end of each year.

The Making Money Rule

Manage your gross profit percentage so it is in excess of 30%

 

The third discipline is cash flow management

The biggest cause of business failure is they run out of cash. Our successfuls managed their cash on a day-to-day basis. They used cash intelligently and avoided the cycle of cash despair when all an owner’s focus is on chasing money to stay afloat

The Cash flow Management Rule

Know and watch your daily cash consumption and generation

 

The fourth discipline is the POWER OF YOU

Businesses at this scale rely heavily on the owner or a very small leadership group. The primary leader or owner is the business driver, the motivator, innovator, decision maker and the chief baby sitter.

The 6 secret behavior traits common to all the successfuls include:

  • An Owner Mentality.
  • They work ON the business not IN the business.
  • Owners understand what they cost the business.
  • They BUILD EQUITY in their business.
  • They are expert at making money from other people’s money.
  • They develop an accountability system.

 

The Power of You Rule

Successful owners are never victims. They take charge of their own destiny

 

The fifth discipline is PEOPLE AND PROCESS.

Successful owners had greater rigor around hiring and onboarding new people and surrounding them with good systems and processes to reinforce great work ethic and outcomes.

 

The People & Process Rule

You are in the fire prevention business not the firefighting business

In summary, our research into The Science of Business Wealth revealed 5 key disciplines which when followed ensures growth in revenues, cash, wealth and greater piece of mind for the business owner:

  1. Good Growth
  2. Making Money
  3. Cash flow Management
  4. The Power of You
  5. People and Process

This research is described in more detail in our Free Guide to the 5 Disciplines of Business Wealth. Enter your name and e-mail here to get it and ensure you are a Prosperous Business Owner.

 

 

What You Don’t Know about Cashflow Will Kill You

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Wednesday, 12 December 2018

Mick Holly & Andre Gien

Wealth Scientists

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