By: Ruth King
The role of a manager is to run a profitable department. This person must take care of minor issues before they become major crises whether those issues are financial, customer, or team.
You have to share financial information with the manager. Sometimes it is top line, sometimes it is key performance indicator metrics, and sometimes it is the entire company’s financial statement…or somewhere in between.
The first thing all managers must have is a scorecard. They need access to the financial statements for their department. They need to know when they are doing well and where the problems are if they aren’t so they can be corrected. Therefore, you need departmentalized financial statements…and they have to be accurate! If the person you want to be a manager has no understanding of financial statements, they have to go to school or you have to teach them how to read financial statements.
Decide how much financial information you are willing to give a manager. Are you going to give the person detailed statements or just summaries? Are you going to start with summaries and progress to detailed statements?
What are you willing to tell your employees? Some companies keep all financial information secret from all employees. The employees have no clue as to the profitability of their jobs or the company as a whole. Many of the employees in these companies feel that the owners are making a lot of money whether or not it is true.
Other companies share financial data with their employees. The owners have taught them about profits, how they are derived, and why they are important for company survival. These employees know the profitability of their jobs and the profitability of the company overall. They understand how they impact profitability. They don’t know the exact details with respect to everyone’s salaries, the rent cost, etc. However, they have an appreciation of how they contribute to the bottom line. In these types of companies, when profitability is an issue, the employees often come up with ways to increase profitability.
So, you as an owner have to decide how much information you will share with the employees and how much information you will share with a manager. The person that you give the financial statements to must understand that you are trusting him or her with confidential information about what is happening in his/her department or the company. The person must learn how to give accurate but broad information to their department employees without revealing the details.
The best way to start training is to start with the department profit and loss statement. Review the financial statement with the potential manager each month. For the first few months you’ll have to lead the discussion. After a few months you should ask the manager to lead the discussion.
So, step one, for you the owner, is to determine how much information you are comfortable sharing with a manager and your employees. Once you’ve made this decision, start teaching the manager, if necessary, about financial information so that he or she can become expert at reading and understanding department statements.
Ruth King is known globally as the “Profitability Master,” and is a a thought leader in entrepreneurship and business. Her books have been recognized as among the greatest in numerous industries. Learn more about all her business activities here.
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