Question:
I’d like to provide my sales people (and all the employees) information on costs, profits, etc. so that they have a healthy understanding and respect for our owner’s investment and risk as well as their value. Any suggestions as to how to go about it?
Answer:
Yes. I’m an advocate of “open book management” which is the term used to define this approach. What it means is that you share with your employees certain proprietary financial information, and explain how their behavior influences those numbers. You do so on a regular basis.
For example, in my business, we have a monthly marketing meeting. The first item on the agenda is always the company’s sales, expenses, and net profits. I use bar graphs and share this month versus last year’s month, this year to date versus last year to date, and both numbers versus our goals. In addition, we have a six-month profit sharing bonus plan, wherein we must meet certain net profit numbers as a company for everyone to share in the company’s profits.
A business is an enterprise whose effectiveness is in large part measured by numbers. I believe that every member of that enterprise ought to have some idea of what those numbers are, and how it impacts him/her.
Don’t assume that everyone can understand a P & L statement. You’ll probably have to teach them what that means.
I’d recommend that you put together a basic P & L presentation, in which you define these terms, show the relationship between them, and create some scenarios that quantify how certain actions can impact the numbers.
I was recently at a dinner function with one of my clients in which the company president spoke. I still remember one of the things that he said. “A 7/10th of a point in average gross margin would bring in an additional $75,000 in profit per day.” That’s a powerful example of what I’m talking about.
I don’t think it is necessary to show the entire line-by-line P & L. That’s a layer of detail in which only a few people are interested. Instead, use a few headings, and keep it simple. If you are uncomfortable with providing the absolute numbers, you may want to use just percentages.
Regardless, make it a point to show your employees the key measurements of how the business is doing, on a regular basis. Monthly works for me. Show it to them in a way that is simple and easy to understand. And, show them how their behavior can impact the bottom line.
This is another one of those questions which can generate some additional interaction from my readers. Those of you who do something like I’m describing, what, exactly do you do? How about sharing your company’s position relative to this by sending me an email?
Good luck.
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