We know an entrepreneur who was considering opening his books to his company's employees. Before he did, he wanted to see how much they knew about the business. So he told them his revenues were about $10 million and asked how much profit they thought ...
Bill Fotsch and John Case , Contributor Opinions expressed by Forbes Contributors are their own.
We know an entrepreneur who was considering opening his books to his company’s employees. Before he did, he wanted to see how much they knew about the business. So he told them his revenues were about $10 million and asked how much profit they thought the company earned on those sales.
The guesses ranged from $2 million all the way up to $5 million. And this was an industry where average after-tax net was about 5%.
The employees weren’t being difficult or flippant. They just had no idea, so they took their best shot. Most employees have never owned a business, so they had no frame of reference.
This kind of business illiteracy is all too common, and the implications can be disastrous. Hourly workers, seeing that the boss dresses well and drives a nice car, may feel that he’s living high at their expense. They may believe that there’s no point in watching costs like inventory or supplies, because “the company can afford it.”
And what if they learn that customer satisfaction is paramount—“do whatever it takes,” as many companies instruct their employees? Asked for a 20% discount, sales or customer service reps may say, “Sure, why not?” If the company’s margin is only 15%, a potentially profitable sale turns into a loss.
Some companies try to address this by paying for business literacy training. The trainers often try to teach employees income statements, balance sheets, and cash flow, using a generic company. But the effects are usually hard to see, particularly after a few months have gone by.
Fortunately, there’s a better way to boost your employees’ business literacy, increasing their value to the company and ultimately improving your business results. Just look at Adams + Beasley Associates, a 40-person custom home building and remodeling company based in Boston.
The company was founded by Eric Adams and Angus Beasley, close friends from middle school, who decided to build and grow a business based on the premise that when people have accurate information, a clear goal, and a drive to succeed, their self-interest and the company’s best interests are one. So the idea of helping employees understand the company’s economics was a natural fit—and, they believed, a necessary step in its continued growth. Another remodeler recommended that they use open-book principles to achieve this goal.
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