Most of the high-performing businesses that we coach have the entire leadership team, or at least the owners, have a solid grasp on the financial health of the company. Profit and Loss Statements and Balance Sheets are typically familiar terms. But, of course, the net profit is the most important – it is how much the owner is putting toward their income every month or year.
Have you ever thought about training your team to understand the financial health of the business? Giving your team — who are compensated through bonuses based on profits — an idea of where the company is and where it’s going can only lead to positive results. In addition, providing this training, particularly by a third-party facilitator or coach, can help increase team engagement and performance. Here are some reasons why:
BETTER DECISION MAKING
Have you ever heard “but I feel so bad charging them this extra money for a change order?” or “there’s no charge for that extra fee for that surgery, Mrs. Smith.” Extra charges are there for a reason, typically equaling additional staffing or supplementary materials. If employees think those fees are arbitrary and don’t tie costs to different services, they may be more likely not to charge them. A knowledgeable team will be much less likely to ignore extra charges to your customer if they have an actual dollar amount that the business will lose if performed for free.
We often talk about alignment and getting teams toward a common goal. The more the employees can be “in the know” about different aspects of the business, the more they are looking toward the same end success. Whether through education, team days, or daily operations (we recommend all three), that alignment is crucial for happy teams that stick around for the long haul.
Often, employees think that the Business Owner is a multi-millionaire just because the company brings in 10 million a year. We hope that we get them to this point for sure, but a great take-home is a mere 7% of the gross revenue in most companies. That means that the owner is only getting $700,000 of that, which is not bad, but it’s certainly not the extreme number that most employees think. Even on a very high level, allowing employees to understand the Profit and Loss Statement ensures that they know how much the owner puts into the business and takes out. We all know that most companies start with a personal investment by the Business Owner and that private investment needs to be repaid before profits are earned.
It’s also helpful to discuss the risks openly that Business Owners take by being an entrepreneur. They risk their health, the health of their relationships, and of course, their financial health if things go wrong. We know so many business owners who skipped paychecks during the first few months of the pandemic, allowing their employees to receive their pay. Understanding the balance sheet and where the business owes money allows the employees to gain empathy.
IT HELPS THEM PERSONALLY
We recently were hired by a remodeling client to do a couple-hour Financial Literacy training for members of their team, so the people being held responsible for the company’s results, and were being compensated for that, could understand why and how their bonuses were calculated.
An unexpected benefit of this is that to teach the concept of a Profit and Loss Statement and Balance Sheet to the team, Pete taught them about their household budget, P&L, and Balance Sheet. Then, he gave the team homework to go home and create a personal Profit & Loss Statement and Balance Sheet. This exercise has been a favorite among this already high-performing team. It helped apply the concepts and make them (literally) hit home.
Taking the time to teach the high-level financials of the company opens the eyes of the team to the inner workings of the business, allowing each member to do their part to contribute. For example, suppose they know how much it costs to remodel a house, including the marketing, sales, cost of goods, and labor associated with it. In that case, they’ll be more likely to be a responsible contributor to the team. This helps everyone win!
Do you need some financial literacy training for your team? Does your team truly understand how they can help your company grow? We can help. Schedule your free, no-obligation business analysis today.