Sharing P&L with Employees

[west07]

I run a business that does about $3m ARR. I have 4 managers and myself. I am considering opening up our P&L to them on a monthly basis so that they can have insight into the financials of the business. My goal is to motivate them and let them feel more in tune with everything.

But I am a little hesitant and need to weigh the pros and cons, as well as how I should disclose this information..

So far I have thought of the following ways to do this:

1. Complete 100% oversight of each account in the P&L
2. Cost of Goods Sold Accounts completely transparent. And then all Overhead/Administrative accounts would be lumped into one number with Net Profit also being showed.
3. Cost of Goods Sold completely transparent and show nothing else

Wondering if anyone has experience and a good method to open up the books to employees?

 

[bcp1928]

@west07 I don’t think it’s a terrible idea but people can get VERY weird about money. If one of them seems that you’re making too much you’ll have a mess on your hands.

 

[unsure25]

@bcp1928 Read: if someone sees you can afford to pay them more.

 

[west07]

@bcp1928 Yes this is my biggest fear. That’s why I was thinking of only providing the Cost of Goods Sold section (which they do have control over). And they would only then see Gross Profits.

 

[coder]

@west07 It's normal to have internal KPIs and they can be anything and differ between departments

So you can just talk about units of something if you want

I'm not sure of the bussinees/process or what you are trying to achieve, you can just target the cost of production and units/time frame for example if price sold is kind fixed

Are you doing production or resell?... What's the top wastage, external input or work time?...

 

[enoch27]

@west07 The reason that they are employees is because they need to know that YOU are taking care of business and that they can get on with their lives.

If you want to motivate people then set some realistic goals and objectives with a little stretch and have say quarterly bonuses that are proportional to how close they got to winning.

 

[okieallday]

@west07 Opening up the p&l only makes sense if the information is given to employees who understand what they are seeing and also have tangible goals to accomplish based on that information you provide.

For low level employees seeing an entire p&l will likely just confuse them.

 

[unsure25]

@okieallday I like to lead my boss to think I'm dumb as a rock. Little does he know I have a $250k stock portfolio I manage myself. Drive a '99 Olds 88 and they think I'm poor too. They're such shallow morons. Perhaps you're not but I wouldn't bet a share of AT&T on it.

 

[marilynliddell]

@west07 They should only be able to see the costs of things they have direct control over

Cost of goods sold - so they can change vendors? Reassign laborers? Eliminate admin oversight/costs?

You mention 4 managers - who’s the head manager ? Has that person come to you wanting to review/change any of the cogs thus far?

Do you measure/reward any other metrics? Customer reviews? Efficiency? Productivity?

Be sure to design it so the product remains high quality, the client remains high satisfaction, the rest tends to take care of itself - - you don’t specifically want the managers trying to cut all costs possible just for a quick “bonus” - - that ends up being lower quality / lower satisfaction / ie: loss of long term sales…

Edit: Didn’t see that you’ve posted ~6 times over the past year about your 1-3 different companies - so based on all those posts, all that feedback, all those suggestions - what did and didn’t work for you? Did you have any actual specifics??

 

[bkimmerz]

@west07 Yeah that can get dicey as hell. People can get weird when seeing financial figures but overall I think it’s a beneficial thing for key employees to understand the business, what’s involved financially and what the end result is. It helps them understand your decisions that otherwise they may not without access to the same information you have. Make sure anybody being provided this information is signing proper NDA and confidentiality agreements. Just make sure you’re securing the information.

I don’t know your business but just showing the top line (Revenue - COGS) may give them the wrong impression. I’ve had this before where a project manager wasn’t understanding when I told them that they were making money on any of their projects but they were all coming in at 15% gross profit. Well overhead was clocking in around 14-16% most years when they were here so they really weren’t making the company any money.

I would go for option # 1. Maybe pull out any owner distribution out of the mix if you’re not comfortable having that information out there but that’s your call obviously. Numbers I’ve shown I’ve left my compensation g/l code in the report, I always believe you should be able to defend and justify what you’re pulling out of your company to anybody whether that’s the bank, bonding company, accountant, or your employees. Also I find it’s helpful to not only share P&L numbers but also open A/P, open A/R so they can understand cashflow as well. Numbers can show the company is paper rich but in reality be cash poor. But again I must stress that only provide this information to employees who it would be beneficial to share and that they will understand what they’re looking at, a $100k paper net profit looks like a shit load of money to most anybody but for a company doing multi-millions in revenue a year, it’s not a healthy sign.

 

[golgothaghostwriter]

@west07 Imo it depends a lot on the product and industry.
How easy or tempting is it for those managers to go around you and become your competitor? If the investment is low and it consists of just reselling for example, it haa a higher risk of tempting them to use your contacts and become your disloyal competitors.

However, of there is significannt capex and other reasons that make it difficult for them to steal your business and the only concern is that they see how much you are making, I believe this is a good measure. Key managers take more ownership and responsibility for the success of the business. They become more connected and focused. It will become easier to delegate. And they will be proud of their contribution to a succesfil business.

 

[trishers]

@west07 I’m in the camp never tell them.

 

[afolabi1024]

@west07 Do you have any reporting or dashboarding you share company-wide?

In line with the previous comment, the financials tell a part of a story, but have many inputs and variables and can't paint a picture of what needs to be improved or where they can add value.

I would Google "Top 10 Small Business Metrics" and select a few (spanning different managers) that you would like to have presented once a month across the company.

Have each department take away the metrics, and spend a month or two just figuring out how to track the information and then establish a baseline of information. In the beginning, there is no bad data, just information. Then, once these metrics seem to be reflective of the current state of the business, look at including a few financial numbers at the end where they would make sense.

So, you would have 3-4 delivery slides per manager, and then 3-4 financial slides at the end. This will help to provide some context for the financial number going up/down each month, and tie the number to all of their other inputs and their actions.

 

[west07]

@afolabi1024 I currently have no dashboards/reports I share company wide

 

[raybo]

@west07 IMHO, you need to start there.

Opening the entire financial statement all at once will be too much information and they won't digest all of it.

What's in it for them to see the financials? What are you going to tell them is in it for them? Bonuses? If you remain profitable they get to keep their jobs?

There has to be a reason to share the information. You need to narrate the vision and create and share the key performance indicators of what that looks like.

Share with the employees financially when things are going well but guard the financial information.

 

[firsthandsemiuniversalist]

@west07 I only share the full P&L with my key employees. So right now only 3 people get access. They are the ones who make decisions on a daily basis that impact the financials. We budget annually and there are bonus incentives tied to those metrics for them.

I give a high level overview to the entire company quarterly. “We are up 5% this quarter vs last in revenue and 8% YTD”.

Transparency is huge and I find it breaks down trust barriers that are inevitably there. Sharing how the company does builds accountability for me as the owner to reinvest back into the business, give raises, buy new equipment, etc when the business is growing and doing well. if employees know revenue is down for the year their expectations of those things diminishes and they are more understanding of decisions I make.

 

[west07]

@firsthandsemiuniversalist The way I see it;

my managers already can figure out our gross revenue as they have to know the revenue per each of their clients and all that information is searchable in various documents.

And I guess if they already know gross revenue they should know at least the gross profits. As profit is a more important figure to me than revenue is.

 

[bless16]

@west07 Instead of opening up the whole business p&l think about splitting out your manager's departments and show them the costs impacting them directly.

If you can't do this, it might be best to talk to them about what is happening with revenue/COGS and expenses. Help them come up with ideas and solutions for lowering expenses in their control and have them come up with ideas that could raise revenue.

Then maybe let them in on your goals amd have them set some for their departments.

Sometimes this is helpful along side a profit sharing plan.