“Gross profit is the measure of the wealth creation (value added) process of every business. Overhead expenditure represents the cost of managing and nurturing this key resource.”
We believe that the accurate measurement of gross profit is the most important element of financial management. Detailed analysis of this critical measure can only be done when the accounts are set up the correct way to enable the right things to be measured.
The starting point is to understand what gross profit is really a measurement of. In all but the simplest business models this can be a complex task. Business managers need to think about their business in terms of the “wealth creating resources” and those resources which manage and nurture those “wealth creating resources”.
Successful business management is about good decision making based on the utilisation of these valuable resources. Only when meaningful performance reporting, detailed analysis and current position statements are provided can good decision making follow.