How do I get my staff to understand the importance of financial results?

You can probably relate to this. I was at a company’s quarterly meeting the other day and all the employees were there. It was fun, lots of celebrating achievements and planning for the next quarter.

But when the CEO got up to talk about the financial results, you could see 100 pairs of eyes glaze over. Not because he’s a dull presenter, in fact he’s very entertaining, but because the employees just don’t get it.

Achieving goals and understanding how those goals fit into the financial results of the business can be very motivating for employees. But for many people phrases such as “profit and loss account”, “gross margin” and “days receivable” may as well be in a foreign language.

The CEO of a retail business decided that rather than dumb down, or indeed skip, sharing the financial results he would teach his employees how to understand financials.

Starting very simply with the concept of “gross margin”, he explained that to generate $1000 for the monthly social night, they had to sell at least $3000 of product. That fact alone silenced a few of the people who had been grumbling that social activities had been somewhat curtailed.

He then set up a cupcake shop in the coffee room. One of the employees baked the cupcakes, a few employees advanced her the cost of the ingredients, another group priced them to make a contribution to charity, and everyone else purchased them (some were even allowed to buy them on credit).

The accountant then showed the employees how the financials for the cupcake business worked – labouring the fact that when cupcakes were sold on credit there was not enough cash to purchase new ingredients.

The cupcake shop and the “how much we have to sell to pay for the social night” examples transformed the understanding of the employees. And when the company had a cash collection drive, every single employee found a way of helping with it, understanding the importance of being able to afford ingredients (or staff salaries!)

Many business owners are reticent about sharing financial information with employees. Usually because they think that employees will be either scared about their job security if the results are poor, or think the business owner is a stingy fat cat if the results are good. 

But actually the opposite is true. Employees value transparency and feel more part of the business when they are involved in the numbers. But to save misinterpretation, take inspiration from the example of the in-house cupcake shop, and make sure employees understand them.

Julia Bickerstaff’s expertise is in helping businesses grow profitably. She runs two businesses: Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses.  Julia is the author of “How to Bake a Business”  and was previously a partner at Deloitte. She is a chartered accountant and has a degree in economics from The London School of Economics (London University).

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