Scaling Your Business with Simple Numbers: Insights from Greg Crabtree

What if you could achieve returns on invested capital over 50%? According to Greg Crabtree, the accounting expert behind the "simple numbers" approach, most small businesses should be hitting those exceptional targets.
In this insightful episode, Greg joins Alan Pentz to outline his groundbreaking frameworks for analyzing labor costs, profitability drivers, and capital efficiency. He advocates focusing on labor as the driver of revenue, not the other way around.
Greg shares his pioneering "Labor Efficiency Ratio" which measures the relationship between gross margin and total labor cost. He demonstrates how to use this metric, along with decomposing direct vs. management labor, to identify operational strengths and areas for improvement.
The conversation dives into Greg's methodology for calculating the true equity invested in a business and setting revenue targets to achieve 50%+ returns year over year. He outlines ideal capital structures and philosophy on capital deployment.
Greg provides unique insights from his "100 Company Model" - an aggregated data set across industries showing an "upstairs-downstairs" economy. Over a third of companies are struggling with declining revenues and improperly managed labor costs.
He stresses the importance of monitoring rolling 3-month profitability and labor metrics to navigate the changing marketplace. Greg advocates building a capital buffer to withstand potential volatility after the 2024 election cycle.
For any entrepreneur striving for sustainable growth and profitability, this episode offers a masterclass in data-driven decision-making and capital management from one of the foremost experts.