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Open Your Books to Profit, continued…
I wanted to post this here on my personal blog to see if anyone had any questions they wanted to submit. Here is the link to the article
In last week’s bIog, I talked about the importance of open book management (OBM) and solicited questions from readers. I received two questions from a window replacement company that I’ve answered below.
Q: How do you recommend a business owner share with employees the urgency of a financial situation, without scaring employees or hurting morale? On the other hand, we do want them to feel secure in the future of the company.
A: To me, the purpose of open book management is threefold: I want to have accurate information to make decisions, I want to hold my employees accountable and maximize production, and I want to build a team effort that empowers employees to make decisions for the benefit of the team, business and our future. OBM, in order to be effective, isn’t about just showing numbers, it’s about involving employees to be part of the management and part of the team by empowering them to help make decisions that affect the future of the company. One reason many employees leave a business is because they don’t feel they are involved or their voices heard. They can feel insignificant.
If your business is losing money, as an employee, they would want to know why? They would also want to know what the plan is moving forward. I am sure you have a history of profitable years that can build confidence. Mapping out your plan and showing how you are dedicated to increasing profits can be your morale boost. Another way confidence booster is when an owner invests their own savings into the business to increase cash flow. It shows commitment.
Is there panic when they see a significant loss? If the situation is handled properly and you have a plan in place, then the team should be onboard and as committed as an owner. Keep the dedicated employees that thrive from OBM and replace the ones that aren’t the right fit. Build a culture of success and surround yourself with good people!
Q: We also want them to realize the importance of efficiency and the significance of every mis-ordered or lost dollar, yet at the same time we want to continue to make sure they spend “what it takes” to do a job right make our customers happy. What’s the happy medium?
A: If you have a history of financials on your business or have the financial set up to show a comparative from this year to last year, you should set some goals and benchmarks. For example, if the labor rate needs to be at 25% and material rate at 25%, which is a gross profit of 50%, then your pricing should be set accordingly. If the financial for the previous month comes in at 27% labor and 30% material, then its time to analyze it. I analyze the good times and the bad times to keep a good pulse on the scenario, but in this scenario, where do we start?
The labor and material rate is higher than expected. Is the pricing accurate to keep you at a 50% gross profit? Were there a few projects for the month that were undersold with a lower revenue number, thus making the labor and material percentage appear higher or were there numerous errors in the labor pay sheets due to lack of production managing the jobs improperly causing extra work?
Employees need to be held accountable to their benchmarks and this can only be done by reviewing the financials and maximizing the potential of OBM. The three elements to make OBM thrive are as follows for business owners- Monitor, motivate and hold them accountable.
When the company is profitable and the numbers are being managed right reward your employees with a bonus system. The goal should be “let’s do what we can to get back to the profitable days.”
Do you have questions about open book management? Submit your questions to me at tim@remodelbuddy.com.
