Most would agree that it is good to educate employees on how the business runs: how much money comes in and where it comes from, how much money goes out and where it is spent, and what is left behind and how it is used to reinvest in the business. Employees feel more invested when they understand the financials of the business. They grow personally and professionally by understanding how the business makes money. They become more sensitive to the costs in the company. Even if they are not a shareholder they develop a sense of ownership.
The concern that private companies have is whether such disclosure will unduly expose their financials to the community, to their customers and even to the press, and whether the employees will be offended by the apparent wealth being amassed by the owners. The smaller the company and tighter the ownership, the more this becomes a concern. But, wait a minute! Do you really believe that your employees don’t have a feel for the revenues of your company? Employees of most companies, particularly small companies, typically have a good feel for the total revenues of the company. Employees of most companies, particularly small companies, “think” they have a feel for the expenses of the company. So, in their heads, they have a clear idea of the profits of the company, and the amount of money the boss takes home.
Unfortunately, their estimate of the expenses is naïve and usually understated. They underestimate the cost of the office/factory infrastructure; they are ignorant of employer expenses, such as a business license, business insurance and the employer’s contribution to employees’ tax obligations; they overlook a variety of costs such as utilities, janitorial services, equipment repair, maintenance, etc. As a result, they have an overstated estimate of how much the boss takes home.
Educating your employees on the financials of your company creates a sense of empowerment and ownership. They are usually surprised and awakened by how much you spend on categories with which they are familiar and which they can impact. Your candor in the disclosure causes them to accept a responsibility to manage the expenses. They grow as individuals, both personally and professionally.
Every employee in your company should have a good feel for the basic flow of your income statement – the sources and amount of revenue and the classes and amount of expenses. In addition, your managers should also have a feel for the structure of your balance sheet – how much assets are tied up, where it is tied up and what return on those assets the company expects to get. Finally, your top executives should also understand the nature of your cashflow and your capital structure – the periodic fluctuations in your working capital, your sources for cash when needed and an understanding of the leverage deployed in the financing of your business. By educating your employees in these areas you not only enable them to do their jobs better, but you grow them as employees – a stewardship responsibility you accepted when you hired them.
Food for Thought is our way of sharing interesting concepts on corporate leadership and management with others who might find it useful. The thoughts offered are intended to be controversial and thought provoking. They always follow our motto of helping develop logical leadership.
Last modified: August 14, 2013