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Show Your Financials
Reasons to show your financial information to your employees
From the opportunities we have had to attend regional hardware association meetings and wholesaler's seasonal conventions, we find that we have an opinion that places us in the minority, regarding employees and our financial statements.
It has been our experience and management style to keep our employees - full time and part time, shortest term and longest term employed - informed as to the financial status of our business.
Not every employee is going to see the same amount of information, and no one sees the breakdown of salaries, or the detail of expenses which our accountant has suggested we make as a part of our business. But, everyone will be informed as to the basic costs and profits of operating Skyway Hardware.
Please allow us the opportunity to produce our argument for giving this information to our employees. The first reason comes from one of our policy letters which gives the directions to each of our team members in their efforts to solve a customer's complaint. In addition to giving a multi- step direction for asking questions to resolve the complaint, the final section of the policy letter gives to each team member a dollar value which is their authorization level of making the final resolution.
The policy tells each team member that in resolving a situation, they must be fair to the customer and to be fair to our store. Our contention is that our team member cannot be fair to our store if he has no knowledge of the cost of merchandise or the cost of doing business. Years ago, we had a high school senior that wrote a report for a business class about the hardware store he worked in. His calculation was that the owners must be fairly wealthy because with each $10.00 sale, the merchandise cost was approximately $5.00, and that the rent, wages, and other miscellaneous costs were "only a few cents more". Using his calculation, the store owner was "making a killing".
With this type of mentality, it is no wonder to us that employees don't think twice about using tools from the sales floor instead of using the store's tool box. Or, why they are wondering why the store doesn't always have the latest state of the art equipment, or that the employee might consider stealing a couple of items for themselves because "the store can afford it".
When we are in our "Skyway University" class, we explain finances using national averages instead of our actual figures. We notice that the attention of team members is gained when we explain that when a $20.00 tool is shoplifted, it takes approximately $700.00 in sales to create $20.00 in net profits for the average store.
The same situation comes into play when we have a team member who has an authorization level of $20.00. This authorization level means that the team member has the authority to adjust the price of a product by $20.00, or even take a $20.00 item to a price of zero. The lesson learned in the classroom is that when we adjust the price on a $20.00 item, the cost of the item is approximately $13.00, and the net profit on this $20.00 sale is 60 cents.
We can't help but think that this additional financial information will help our team member make an intelligent decision that can be fair to the customer and to the store. And because we have a bonus program based on sales, we believe that this will inspire the team member to work for the fair solution instead of just giving in to the customer and dumping the item in the defective pile.
When we meet with our supervisors, the information becomes more detailed and exacting. We work with the actual sales and expenses. In this meeting, both the income statement and balance sheet are reviewed.
Our meeting with supervisors places an emphasis on inventory turn, accounts receivable, accounts payable, expenses, and payroll costs. With inventory, we review the amount of inventory we have on hand, as well as examine our open to buy budget. The accounts payable review will tie into inventory as we discuss our seasonal purchasing.
Nancy, our office supervisor will keep us posted as to the accounts status. Sometimes our knowing an account on an individual basis will assist us in keeping accounts current.
It is a confidence building feeling when our supervisors begin to examine the expenses and work together to find ways to control expenses. They will most closely examine the advertising, outside services, office and store supplies. They will examine things from advertising donations to supplies purchasing. Our experience has been that the area that requires the most attention, but also seems to be the best understood is the matter of payroll. In showing our financial statement to our supervisors, we explain that the payroll is shown as a percentage of sales, and that there is a ceiling to this percentage.
As we spend our payroll dollars, one possibility that we can use is to allocate more hours to the work schedule, and therefore the pay per hour will be lower for each team member. Or, using fewer hours on the schedule, we can have a higher wage scale. And of course, wages can go up as sales go up.
This formula has done very well to eliminate the old feeling among team members that they hoped that the boss was in a good mood when he did semi-annual job reviews and calculated pay raises.
One of the hardest points we have had to make with our supervisors has been to have them understand just how unique this management style is. Our travels have shown that very few stores tell their team members what their sales figures are each month, and a very small group will educate any of their employees regarding the financial sheets.
But our argument for making the monthly financial sheets available to our team members comes from the old adage that "a little knowledge is a dangerous thing". We think it is a little too dangerous.
This article is copyrighted by Tom Shay and Profits Plus Solutions, who can be reached at: PO Box 1577, St. Petersburg, Fl. 33731. Phone 727-464-2182. It may be printed for an individual to read, but not duplicated or distributed without expressed written consent of the copyright owner.
Profits Plus Solutions, Inc.