Management Matters

By the Book
To share your numbers or not

By Thomas M. Langer, Jr.

Here’s the question: Does sharing profit-and-loss numbers with employees improve profitability and profits in a shop? This issue, which might seem simple on the surface, unearthed an absolute hornet’s nest of opinions ranging all over the board. People were adamant about their positions.

For started, I interviewed shop owners from across the nation. They were a decent cross section of large and small, east and west types of shops. Since I taught college statistics for a bit, I know my survey is pretty leaky at many levels. It is not big enough to generalize, not truly randomized and is not at a level that different shop sizes and types can be pulled out. However, I think it does fairly represent the sentiment I found in my contacts.

Of the shop professionals I spoke with, about 20% share some or all of the financials with unrelated employees. Nearly 100% share information with family members if appropriate. So, family knows what is going on, others typically do not. To summarize, most shops do not share financial data with employees. Is this the best policy? Consider the following offered by professionals. The points are presented as pro and con for your review:

PRO
If you don’t share, employees may assume the worst, for example when the shop is not busy, and then leave out of fear when it is only a short lull in business and your finances are not hammered. One thing sharing your information may do is help retain the best employees during slack times.
CON
When times get better, and your employees learn you are making more money, they may assume there’s a raise on the way. When one doesn’t come, people may become disenchanted and leave just when you need them. You cannot share information only in bad times, then hide it when you think people will want more money. Your employees will figure that one out quickly and get mad.

PRO
Giving people enough information means they will know WHY you make certain decisions. These decisions may include wage freezes, benefit decreases, saving money on expenses such as supplies and utilities, lengthening uniform cleaning cycles and lots more. If your folks know the WHY, they are much less apt to assume the worst. Moreover, they may well be more willing to pitch in to help if they understand the situation.
CON
Like above, be very careful when you start making more money again. If you pull back information, try to disguise results or hide things, it will take your employees about two minutes to figure out what is going on, and you to lose your boss of the year award.

PRO
Sharing your financials allows you to have a deep discussion about how a small business runs. Too many people, your employees included, tend to assume you have a money-printing machine somewhere in the back. What they don’t understand is that they are the lion’s share of the costs, and along with other expenses, just how expensive it is to be in business. Having this understanding may be helpful when you deal with compensation issues and much more.
CON
When people have information that doesn’t make sense to them, they generally become quite anxious and sometimes frightened. As a result, if you are not ready to teach and explain along with the sharing, then don’t say anything. Moreover, some employees may think that your explanation is really just a ruse to tell them they are too expensive and hide the big check you put in your pocket. Once someone sees the payroll category, not understanding and not knowing what all is included, but knowing their wages, they start to do an inventory of what they think the total may be and how much you represent. Not a good thing.

PRO
Sharing shows trust and confidence. Let’s face it, we all feel more valued when we believe people are allowing us an insight into another world. This is especially true with something like financials since they typically are not an issue that is discussed in nice company.
CON
All of the trust and confidence you think you are building could falter if just one person on your crew is a “mole” and spreads discontent through everyone else. It is mission critical to watch for this and call them in for a discussion if needed. Oh, and you can join all the rest of us when you realize you have a malcontent in your shop. You are far from all alone. In fact, you are in the vast majority of small business owners. Welcome.

So, if you have been following the themes, the summary of why to give employees the businesses’ financial information is that they feel trusted, a part of the business and understand better why things have and will happen. This is especially true relative to what affects them: their paycheck! However, before you rush out to the shop and bare your financial soul, please consider the following:
Trust: But, when you trust people, they may not earn your trust in return. It may be quite damaging for your financial information to get out to suppliers, competitors, possible employees, etc. Someone may actually let the cat out without realizing the damage that might be done. So, you must assume anything you share with employees may well spread outside the organization. It may be OK, or a risk you want to take in lieu of the possible benefits. Your call on this one.

Mass confusion: As noted, too much information is overload, and overload is bad news. It’s bad news because people will almost always assume the worst right away. For example, I don’t get why you’re telling me this information, but it must mean I’m going to lose my job or something. Get a couple of those reactions in your shop and you can get ready to begin placing your help wanted advertisements. The best rule is the old KIS, or keep it simple! Start slowly with easily explainable information. Be sure to present why you are making this very significant move, and if it won’t affect jobs, say so right away, up front.

The hard part: YOU! You must decide you are ready to take this step. It’s a big decision. As you no doubt realize by now, the answer is not just to circulate or post a copy of your monthly financials. You must decide your crew is ready for this. And, you must design, commit to and implement a structured learning process introducing a few bits of information at a time. Finally, you must commit to this program for the future, not a short-term fix for a business downturn. If all of this is met, your program still includes risks to you and the business in terms of information getting out, but at least among employees, should be solid.

As a business owner I went through this decision process myself. It was a really tough call. I had a fantastic crew who were interested in the business. I felt like, for the most part, there was little risk as defined earlier. On the other hand, I have always been a very private person who felt funny about discussing things like financials.

After kicking this one around for about eight months, and going back to my graduate education in organizational development, I did decide to provide financial data to my crew, but in a limited sense. The next step was sitting down with the numbers and a copy of business data for the month and year to date.

To choose the data for presentation, I consulted with my accountant. We looked at a couple of the many databases that offer comparative data to other businesses like ours in type, size and location. From this we developed indexes. This way we could present something that was easily explained and trendable, without putting hard numbers out. Here’s one example:

The monthly goal for net margin was 7%. We met our goal in six of the 12 months, not in the others or year to date. Any month we made it, we would have a lunch to celebrate. The other months we would discuss what happened and why, and how we should address the next month. All was done in a very positive environment without placing any blame or threatening anyone. We did have a year-end award if we made the goal of a gift card for each person splitting the amount over seven percent. For the year 2014 it wasn’t paid, but happily it was in 2015.

Your charts may include variables such as gross margin, gross sales, expenses, throughput, average R.O., etc. It would be my suggestion that you keep it to four or five easily understood charts at most. In my case, I started with one and expanded to four. I didn’t add a new variable until the prior was well understood by the entire crew.

Furthermore, in lieu of big lumpy dollar numbers, express the data in terms of percentages that offer a chance to trend the results over time and avoids big discussions about business finances, and ultimately, their wages. It is very helpful to recognize, in at least some small way, when a goal is met or surpassed. It keeps everyone interested and engaged, while making it even easier to understand the variables you are including.

Whether or not you provide some level of financial information to your employees now, or may in the future, it has to be a very personal decision based on your specific circumstances, objectives and feelings. There are many good reasons to consider providing some type of business scorecard. But, there are just as many very good reasons not to provide this information. The choice, ultimately, is yours to make. Good luck!

Thomas M. Langer Jr. has a career spanning a lifetime in the industry and is combining this experience with new information to provide readers of Undercar Digest with information you need to build a better business!