Should you share your firm's financial results with this staff? This is one of the questions that business owners face every day, and all too often the answer is no.
But no is probably the wrong answer. An organization can very often improve performance and get its employees bought into it’s mission and purpose simply by sharing financial results with the employees.
Let’s take a look at why you’ll want to change that no to a yes.
The goal of any business is to make money. Employees at all levels of an organization make many business decisions everyday that can affect profits.
If you're managing a business and trying to make that business as profitable as possible, you want your employees to make decisions that help maximize those profits. The catch is your employees can’t help if they don't understand basic financial statements or understand how the business makes money?
Let's take a look at how sharing financials can help improve the performance of the business.
The first step is to make sure that all your employees know how to read basic financial statements. They don't have to be experts, but everybody should have a basic understanding of the structure of financials statements and information that the statements convey.
The next step is to share the financial results of your business with your employees. Let the employees review the profit loss statements, balance sheets, cash flow statements, and budgets for the company and for their division, branch, or department.
When you share the financials, you accomplish two things: the employees can see how the business is doing; and they can see how their actions can affect profits. Once they understand where the profits are coming from and understand that they can affect profits, you have provided the tools and created the mindset so they can think about profits when making decisions.
Let's look at some examples of how this might work in practice.
If you show employees profit loss statements for division or product line, you can also point out which products are most profitable and which products or least profitable. If you're a salesperson and now know that one product is more profitable than another, it's a simple step to focus your sales effort on the more profitable product.
If you understand that every time the business incurs an expense, this reduces the profits of the business, you might think twice before incurring an expense. For instance, if you know there's a cost to the profits when you take a training class, perhaps you'll think twice before signing up for that class. If you know the costs of adding staff, perhaps you'll look for alternatives before adding that additional person.
If you share your financials with your employees, and you teach those employees how to read the financials, you can create a situation where the employees not only understand how the business makes money, but also where they continually think about profits when making day-to-day decisions.
About the Author
Bill Hettinger, Ph.D. is an internationally known consultant, educator, and thought leader who has trained numerous students, business owners, and managers in finance, entrepreneurship and small-business creation.
His latest book is Finance Without Fear: A Guide to Creating and Managing a Profitable Business. Finance Without Fear is an easy to understand guide to finance that not only explains the key concepts of finance, but also explains what the numbers mean and how finance can be used to create a business with a competitive advantage. He can be contacted at [email protected] To read Bill's complete biography, click here.