How open book are you when it comes to sharing information about how your business is performing financially? Are you one of these business owners that keeps everything locked in your head and in a spreadsheet, or do you share information amongst the team to help them understand what the business is trying to achieve and where it is? Do your team members, for example, understand what your net margin target is and what the net margin actually is? Do they understand how much gross profit the business needs to make every quarter and every month, or do they just have a top-level understanding of the turnover figures in your business?
Once upon a time, I worked with a business where they were really secretive about their financial performance. When I asked the business owner why, he said to me he didn’t want everybody to know how much money he was making. And I’d say to him, “Look, however much money you are making at the moment, your team members absolutely think you are making a lot more.” And to prove that I was right, I got him to ask them, “For every 100 pounds we sell, how much do you think ends up being net profit?” Those team members were saying 20 pounds, 25 pounds, 30 pounds. They had absolutely no idea what the true net margin of that business was. When they found out that the net margin was only five percent, they were astounded.
This then enabled that business owner to have a good quality conversation about the impact of discounts, not managing costs properly, and the impact of inefficiency and all sorts of other things that affected that bottom line number. It is really important that you help your team members understand what your financial reality is so that they are empowered to make better decisions.
If you want your team members to treat your business like it is their business, then you need to teach them those numbers. Now, I’m not saying you need to give them all the details about your dividends, but you do need to share the key numbers with them. The only caveat to that is that the financial education needs to come alongside those numbers. Help them understand that if you’re going to make four hundred thousand pounds of net profit, a hundred thousand pounds goes to corporation tax, and the 150,000 pounds or so would need to go to investing in their business. Help them understand what proportion of the money that’s left over needs to go into cash reserves so that they can make better decisions and they can help you move the needle in the right direction.
If you aren’t getting that kind of input from your team members that is genuinely not their fault, it is down to you to show them the numbers and teach them a basic understanding of how the financials work in your business. Obviously, your management team and your directors need to have a much more detailed understanding of these numbers, but all the way down the business, I believe that everybody, including the most junior member of your team, needs to understand at least the net margin and net margin target. They need to understand gross profit and gross margin and they need to understand turnover. That way, they will help you achieve your results.
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