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I’ve been a practicing CPA since 1989. Most of my practice has been focused on businesses and the individuals who own businesses. I also spent five years studying the self-made rich, 61% of whom were business owners, and another four years as a CFO focused on funding/running start-ups and providing capital for expanding businesses.
So, I know something about what makes a great business.
Every great business has four things in common:
- High Profit Margins
- Great Leaders
- Proven Processes and
- Stable or Growing Industry
High Profit Margins
Businesses with profit margins in excess of 30% create wealth for their owners and for their key employees.
Gross Profit = Gross Revenue Minus Cost of Goods Sold and Minus all other expenses.
Gross Profit Margin means Gross Profit divided by Gross Revenue.
Great Leaders
Great Leaders are Process-Oriented – they are obsessed with experimenting with processes until they find those that deliver their company the results they desire.
Great Leaders have a Vision of the future of their business that they share with every employee.
Great Leaders seek feedback from their employees and use that feedback to pivot business operations.
Great Leaders train employees how to do their job, using the proven processes the company developed.
Great Leaders are in constant communication with employees and customers.
Great Leaders have a strong work ethic and that work ethic mindset trickles down to every employee.
Great Leaders have timeworn Rich Habits and those Rich Habits trickle down to every employee.
Proven Processes
Great Businesses continuously experiment with processes. When they find processes that deliver the company the results they desire, they implement those processes by training every employee to expertly follow the processes that apply to each respective employee.
The Leaders within the company then continuously evaluate how those processes are being implemented by employees. Employees who are not adequately implementing the processes are re-trained and continuously mentored until they get it right. If an employee repeatedly fails to follow the processes, after repeated mentoring and training, that employee will be terminated.
Stable or Growing Industry
Businesses with High Profit Margins, Great Leaders and Proven Processes will eventually fail, if that business is in an industry that is in decline. Great Businesses are only possible in a stable or growing Industry.
Tom Corley is an accountant, financial planner and author of “Rich Kids: How to Raise Our Children to Be Happy and Successful in Life”, Effort-Less Wealth, Change Your Habits Change Your Life, Rich Habits Poor Habits and “Rich Habits: The Daily Success Habits of Wealthy Individuals.”
