As a small business owner, you are probably focused on growing your revenue. That’s
fine – who doesn’t want to get more sales each year? But, the top line should not be
the first place your attention goes when you look at the income statement. Yes, you
read that correctly!

According to the book Simple Numbers, by Greg Crabtree, which we use as a
foundation of our philosophy here at SBS Accounting & Advisors, pre-tax profit should
be your north star metric.

Here’s a scenario to explain what we mean: Imagine two companies with very different
revenues. Smith’s Construction’s top line last year was $15,000,000. Not bad. Their
cost of goods sold was high, which is normal for the construction industry. What really
hurt, though, is that they had poor operations and management, so expenses ate up
most of their remaining income, leaving them with a paltry $300,000 of pre-tax profit. As
a percentage of revenue, Smith’s Construction’s pre-tax profit was only 2%, which
means they’re in acute danger of going bust.

On the other hand, Julie’s Florist top line was much more modest last year at $800,000.
But, they were meticulous and smart about every aspect of the business, and were able
to produce an impressive $112,000 pre-tax profit. As a percentage of revenue, Julie’s
Florist achieved a spectacular 14% pre-tax profit, which means they have a very healthy
company and should probably expand or consider franchising!

Focusing on pre-tax profitability is essential for the long-term health of your business.
Don’t fall into the trap of chasing high revenue if it leads to low profit margins – that’s a
recipe for disaster. Instead, pursue opportunities with enough margin to ensure you
have the financial runway to invest, adapt, and weather economic downturns.

As we’ve mentioned before, one expense that you need to take seriously is your own
compensation. If you don’t pay yourself a market-based wage, and don’t account for it
in your financials, then you won’t be able to accurately calculate your company’s pre-tax

Remember, revenue is vanity, pre-tax profit is sanity.

To discuss how to implement and utilize the pre-tax profit metric at your company,
contact us at or 770-284-5537 today for a consultation.