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Does your staff know the value of money?

In a large business, it's easy for all to lose sight of the true meaning of money. Here's how to explain it to your employees, according to a Businessweek.com article.

By John Baldoni

Anyone who works in a well-run restaurant—white tablecloth, deli, or mass market—knows the margins on every item sold. Margins in the food business are notoriously slim, measured in pennies on the dollar. Cost of ingredients, labor, overhead, and the like all go into the pricing of a hamburger that takes minutes to make or an osso bucco that requires hours. Volume matters but bottom lines rest on a foundation of one-at-a-time customer transactions.

When revenues are measured in the hundreds of millions or even billions, it is easy to forget what goes into making a dollar. Often it is frontline managers who know exactly how much things cost because they deal with customers on a daily basis, while everyone else in the organization needs to be reminded—or educated—as to how the business makes its money. As the Chinese proverb says: "Only the man who crosses the river at night knows the value of the light of day."

How you illuminate the topic is critical. The purpose of such teaching is not an exercise in finance; it is a lesson in how to value what you and your employees do to add value to the organization. Consider the following items for discussion at a future staff meeting.

  • Explain the balance sheet. Far too often we assume that everyone in the department knows how to read a balance sheet. Not true. Invite someone from accounting or finance to explain the company's financial statements. Select a presenter who knows how to make the numbers come alive—that is, who can address how the company makes its money.
  • Itemize your department's role. After you have explored the big picture, explain how your department contributes to the bottom line. This can be a humbling exercise because outside of sales, most individual functions—product development, marketing, legal, and human resources—are cost centers, not contributors. That is, they spend rather than earn.
  • Creating-value dialogue. Now that you have sketched the big picture and filled in your department's role, turn the discussion over to the team. Invite them to make suggestions about how they can add to the bottom line. Employees may be quick to come up with ways to cut expenses. That's good for starters. You then want your team to think about ways to add value. This will involve a combination of working smarter, working more efficiently, and maximizing available resources.

Thinking small can sharpen an approach to business but it is not a prescription for growth. That requires an ability to consider the possibilities open to you.

Recently I had a conversation with a specialty store owner who shared his plans for the next steps in developing his business. Given that his business had just survived the darkest days of the Great Recession and is dealing with an uncertain outlook today, he demonstrated exactly the kind of attitude that is necessary to survive: thinking beyond borders. For this store owner, that meant offering new services, as well as opening more locations. For a global business, it might mean developing new markets in locations that do not know its products or services. While both examples call for big-picture thinking, savvy executives will make certain they can afford the expansion by itemizing costs for hiring new people, training them, and most important, researching the markets and customizing products and services for them. Knowing the costs to enable growth is essential.

To make that happen you need to remember the adage: "Take care of the pennies and the dollars will take care of themselves." Trite perhaps—but nonetheless valid.

See the article here: http://www.businessweek.com/managing/content/oct2010/ca20101026_718108.htm

 

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