Why you should consider sharing financial info with your team

This past week I spoke to a team in the service business about money and how it works in a business.

I started out by asking:

“Once all expenses are paid, what percent of our total billings end up in the owner’s pockets as profit for them to take home?”

What would your guess be about your own workplace? How much of every dollar do the owners get to take home to buy Maseratis with?

The guesses were very revealing. The highest guess was 48%. There were many (maybe half?) who guessed 30% and above.

The real answer in their case was 10%, and that’s high! The average business in North America averages between 5 and 6% profit before tax.

Now, think about the implications of this.

For easy math, let’s say your business bills $10,000,000/year. In that case, there are employees who believe that owners are pocketing nearly $5 million dollars/year! And then (the employee thinks) the owners have the temerity to turn down a request for a raise. Or they ask everyone to make sure they turn out the lights in the warehouse to save money! Greedy jerks.

“Why not BUY US ALL HOUSES,” they think to themselves. “It would be NOTHING to you!”

Bloated capitalist pigs.

Maybe this is helping the rise of socialist thinking in North America. Simple ignorance of how money works in a business.

I went on to explain that, out of that 10% profit, lots more of it is earmarked for other things including:

1. Taxes. Don’t pay and you go to jail.
2. Paying back shareholders for money invested in the past.
3. New initiatives. Want new uniforms? Wrap the vans? Do a marketing campaign? Make a new hire? All comes out of profit.
4. Equipment and facility upgrades.
5. Extra inventory purchases.
6. Covering bad debt.
7. Once these and other items are covered, they can go buy the Maserati. Maybe explains why most business owners don’t drive them 🙂

There are more, but those are a few. The first law of business growth is: growth sucks cash. Most owners put profit directly back in the business to keep it afloat.

When I explain this to groups, there are usually two reactions:

First, they assume I’m lying. When the CFO backs me up on my info, they reluctantly believe.

Second, they say, “If this is true, why would anyone be in business?”

Exactly. It isn’t easy.

So, next time ownership tells you to please watch expenses, take them seriously.

Getting ahead is about getting started.