Do your employees know how they impact profit in your company? Do they know which activities they do every day that will make or cost your company money?
There is no better time than during or pending a likely recession for a business owner to stop thinking short-term and start thinking long-term. That’s right. You may be scrambling to stay afloat right now. Your profitability may be or threatening to drop in the tank. And there’s that growing knot in your stomach as you work to make payroll every other week. More often than not, a key part of the problem you may be facing is that up till now, you likely have been one of the only people who understands how your company truly makes money. And when things are running well, that approach can work.
Yet, the inefficiencies that existed in your company even when things were running well and you were making money are now bubbling to the surface. Every little issue that you didn’t have time to fix when clients were throwing money at you and you were on the top of your game will now be the same issues that drive your company to the brink.
Now, more than any other time in your company’s history is the time to really think about how your company makes money. And it’s time you start sharing that secret with every single employee.
When things start to tighten down, when clients start to cut back orders, when the bank refuses to extend credit or is only willing to offer higher interest rates – it’s easy to panic and start looking at short-term solutions. Solutions that may include reducing expenditures, not hiring new staff, laying off existing staff, taking a pay cut yourself, asking your executives to take a pay cut – you know the drill.
There is no better time to start taking a much longer view of your company’s strategies than when everything is on the line. And that starts with explaining the financials so that every single employee understands how you make and keep money, and to educate them on the role they play in helping the company make and keep money.
When you take the time to explain to your employees that there are three ways to increase how much money you make:
- you can increase the number of what you sell (volume)
- you can increase the price you sell it at and (price)
- you can decrease the costs it takes to produce what you sell (cost)
AND you help them connect how their work and daily decisions play a part in all three of those activities—lights go on! You tap into their ownership mindset rather than the all-too-common renter’s mindset.
Suddenly, the financials are something they not only understand, but something they can talk about and do something to influence profitability! They can begin to see that the financials aren’t just something the sales team and CFO should care about. Everyone plays a part in making the company work and be profitable.
The numbers during a difficult time may not be good but hiding the reality of what’s going on from your employees only makes things worse. If you start to create a language of growth—we increased our price by 15%, increased our volume by 5%, decreased our costs by 20% and brought in an additional $150,000 in our first quarter – you have suddenly given every single employee in your company a way to see how their role impacts the bottom line.
This language of growth starts to decrease anxiety as your employees begin to gain a better understanding of what is going on in the company. If employees understand how they can bring value to a company and see how that value directly impacts a company’s bottom line, you start to build a longer-term solution to your company’s future.
This concept—volume, price and cost—is what we refer to as Profit Drivers. Here are three steps you can take immediately that will help you weather this looming downturn or the next one.
- Share with your employees how your sales volume is impacted and what your strategic initiatives are for maintaining, sustaining or increasing your sales volume. The sooner your employees understand your sales strategy and what proactive measures you are taking to improve them, they’ll start asking how they can help.
- Share with your employees how you determine your price for your products or services. Keep it basic but take the time to help them understand why you can’t reduce them below a certain point or raise them too high. What you are doing is helping your employees understand the thinking behind how the company makes money. Don’t leave them in the dark, especially during difficult times.
- Talk about the costs of producing your service or product. Explain that you work with key vendors and the relationships you maintain with those vendors are critical to your ability to keep your prices under control. In difficult times, those relationships you have created with those key vendors may be the saving grace for the company’s ability to remain competitive.
Getting people in your company to talk about Profit Drivers, to be able to understand what role each employee plays in each of the profit drivers – volume, cost, price – is a powerful way to engage the entire company in understanding how three very basic financial concepts impacts your company. Additional benefits don’t just stop there:
- If employees understand the value they bring to a company, they will be more engaged.
- If an employee is engaged, they are more productive.
- A company full of productive employees will make more money!
When the economic downturn turns around, and it will, you’ll have taken critical steps in helping your company weather the next one by educating your employees on how your company makes and keeps money.
At Vantage, we offer a financial literacy program to help employees understand how and what they do every day, impacts a company’s bottom line. The goals of the program include:
- Raising awareness that the ability to impact a company’s bottom line is the responsibility of each and every employee
- Identify how well a company is navigating through the 9 activities that make up a company’s profit zone
- Based on understanding the 3 Profit Sequence Zones, identify what Zone each person in the company resides in
- Help each employee identify the activities they can impact that will improve a company’s bottom line and set up key indicators to track their progress
- Create specific initiatives that will lead to a company strengthening all 9 activities that impact profitability
- To see improvement in a company’s bottom line.
Contact us today for free information about our Profit Zone program along with the 9 activities to increase profits and start the path toward long-term thinking about your company’s financials.