Show Your Financial Statements to Your Employees
Getting everyone on the same team

Radical thoughts can produce radical results in a business. Allow this SBA to share one very radical idea; keep your employees - full time and part time, shortest term and longest term employed - informed as to the financial status of your business. Share with your employees a monthly financial statement for your business. Allow us to share this example from a business that is doing this radical idea.

First, allow us to explain that not every employee is going to see the same amount of information, and no one sees the breakdown of salaries, benefits or the detail of every expense in the business.  But, every employee is informed as to the basic product costs, general operation expenses and the profits of operating the business.

Please allow us the opportunity to produce a sound argument for giving this information to your employees.  The first reason comes from the example business that had a series of policy letters which give the directions to each employee 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 employee a dollar value which is their authorization level of making the final resolution.

The policy tells each employee that in resolving a situation, they must be fair to the customer and fair to our store.  The contention of the owner of the business is that a team member cannot be fair to our store if they have no knowledge of the cost of merchandise or the cost of doing business. 

The reason for creating this policy was the experience of the business owner from several years prior. A high school student wrote a report for a business class about the business they worked in.  The student’s 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 that employees don't think twice about what they do. It may start with their using a business card for a note pad, continuing through constantly adjusting the thermostat, to simply not taking care of the fixtures and equipment of the business. Employees may wonder why the business does not always have the latest state of the art equipment. An employee might consider stealing a couple of items for themselves because "the business can afford it".

As the business has an ongoing staff education program, finances are explained using national averages instead of our actual figures.  The owner of the business commented that the attention of team members was gained when the owner explained that when a $20.00 product was shoplifted, it took approximately $700.00 in sales to create the $20.00 in net profits for the average business.

Looking at the policy we previously mentioned the owner related the shoplifting to a situation where a team member has an authorization level of $20.00. This authorization level means that the team member had 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 was that when the employee adjusted the price on a $20.00 item, the cost of the item is approximately $12.00, and the net profit on this $20.00 sale is one dollar. The business owner thought this additional financial information would help their employee make an intelligent decision that can be fair to the customer and to the store.

Because the business has a bonus program based on sales, this will potentially inspire the employee to work for the fair solution instead of just giving in to the customer and dumping the item in the defective pile.

When the owner meets with their supervisors, the information becomes more detailed and exacting.  This group works with the actual sales and expenses.  In this meeting, both the income statement and balance sheet are reviewed.

The meeting with supervisors places an emphasis on inventory turn, accounts receivable, accounts payable, expenses, and payroll costs.  With inventory, they review the amount of inventory on hand, and examine the open to buy budget. The accounts payable review will tie into inventory as they discuss seasonal purchasing.

It is a confidence building feeling when the supervisors begin to examine the expenses and work together to find ways to control them.  They will most closely examine the advertising, outside services, office and store supplies. Their experience has been that the area that requires the most attention, but also seems to be the most understood is the matter of payroll.  In showing the financial statement to supervisors, the owner explains that the payroll is shown as a percentage of sales, and that there is a ceiling to this percentage.

As the business spends payroll dollars, one possibility they can use is to allocate more hours to the work schedule, and therefore the pay per hour will be lower for each employee.  An alternative is using fewer hours on the schedule and having a higher wage scale.  And of course, wages could go up as sales go up.

One of the hardest components our business owner has is to get their supervisors to understand just how unique this management style is.  Very few businesses tell their employees 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 employees comes from the old adage that "a little knowledge is a dangerous thing". Perhaps a little too dangerous.