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Financial Literacy Strategies
If your goal is to have a financially intelligent company, your first step is to figure out a strategy for getting there. We don’t use the word strategy lightly. You can’t just give a one-time training course, hand out an instruction book, or post the income statement and expect everyone to be enlightened. People need to be engaged in the learning. The material needs to be repeated and then revisited in different ways. Your results need to be shared. Financial literacy needs to become part of a company’s culture. That takes time, effort, and even a little monetary investment. But it’s very doable. We’ll outline three approaches—ones that aren’t mutually exclusive—that we have seen work.
TOOLS AND TECHNIQUES
The following tools and techniques hardly constitute an exhaustive list. But they are all approaches that you can implement on your own fairly easily.
Training (Over and Over)
Start by putting together three short training sessions. We don’t mean anything fancy: even a PowerPoint presentation with some handouts works fine (though we would caution you that PowerPoint isn’t always conducive to learning!). Each session should last between thirty and sixty minutes. Focus on one financial concept per session. Joe, for example, conducts three one-hour courses at Setpoint—on the income statement, on cash flow and project finance, and on the balance sheet. Depending on your situation, you might look at gross margin, selling expenses as a percent of sales, or even inventory turns. The concepts should be relevant to your business, and you should show people how they themselves affect the numbers.
Offer these classes regularly, maybe once a month. Let people attend two or three times if they want—it often takes that long for folks to get it. Encourage 100 percent attendance. Create an environment that tells participants that they are an important part of the business’s success and that you want their involvement. Eventually, you can ask other people to teach the class—that’s a good way for them to learn the material, and their teaching styles might be different enough from yours that they’re able to reach people whom you can’t.
Weekly “Numbers” Meetings
What are the two or three numbers that measure your company’s performance week after week and month after month? What are the two or three numbers that you yourself watch? Shipments? Sales? Hours billed? Performance to budget? Chances are, the key numbers that you watch relate in some way to your company’s financial statements and hence ultimately affect financial performance. So start sharing those numbers with your employees in weekly meetings. Explain where the numbers come from, why they’re important, and how everybody affects them. Track the trend lines over time.
You know what will happen? Pretty soon people will begin talking about the numbers themselves. They’ll start figuring out ways to move the needle in the right direction. Once that begins to occur, try taking it to the next level: forecast where the numbers will be in the coming month or quarter. You’d be amazed how people begin to take ownership of a number once they have staked their credibility on a forecast. (We’ve even seen companies where employees have set up a betting pool on where a given number will be!)
Reinforcements: Scoreboards and Other Visual Aids
It’s fashionable these days for corporate executives to have a dashboard on their computers, showing where the business’s performance indicators stand at any given moment. We always wonder why all companies, both small and large, don’t have something similar out in the open for every employee to see. So not only do we recommend discussing the key number or numbers in meetings; we also suggest posting them on a scoreboard and comparing past performance with present performance and future forecasts. When the numbers are visible, it’s tough for people to forget or ignore them. Remember, though, that small graphs can be easily ignored—and if they can be, they will be. As with your dashboard, make sure the scoreboard is clear, straightforward, and easy to see.
We also like visual aids that remind people how the company makes money. They provide a context for the day-to-day focus on key numbers. Our own company has developed what we call Money Maps, illustrating topics such as where profits come from. See the sample in figure 29-1: the map traces the entire business process at a fictional company, showing how much of each sales dollar goes to paying the expenses of each department, and then highlighting how much is left over as profit. We customize these maps for our clients, so that everyone can see all of their own operations. But you can even draw maps and diagrams yourself. A visual is always a powerful tool for reinforcing learning. When people look at it, it reminds them how they fit into the big picture. It can have practical uses as well. One company we know of put up two copies of the same map. One copy showed the company’s target numbers—what its best branch would do. On the other, managers wrote their own branch’s numbers. People could see for each critical element how close they were to, or how far away from, the best branch’s performance.
In all these approaches, you have to remember a few key precepts that have to do with the way adults learn. Probably the most important precept is to involve them in the learning. Adults learn least well if lectured to; they learn best if they are doing it themselves. So after you give them the basics, ask them to do the calculations, discuss the impact, and explain the meaning. We bet you’ll hear some amazing things, like new ideas on how to reduce downtime or improve cash flow. Adults learn especially fast when they see a reason to. If they understand the big picture—and if they understand how what they’re learning connects to their job, their impact on the company results, and their own financial situation (e.g., job security, the chance for raises)—they’ll pay close attention. Just be careful not to make assumptions about what they already know. (Business owners often assume their employees know more about financial measurement than the employees really do.) Instead, teach those basics in a way that ensures no one is embarrassed about what they don’t know. Keep the teaching tightly focused, keep it fun, and remember, don’t try to make them into accountants!
In entrepreneurial companies, the “corporate culture” comes primarily from your philosophy about people, about communication, and about how a business should operate. If the culture is right in your company, the opportunity for improvement is huge. At one company we worked with, part of the education process included a change in language, which can be tremendously important in any culture change. It started at one location, where the regional manager began calling employees business partners. These new business partners took the change seriously, mostly because there were other things going on that reinforced the message, and began calling each other business partners. Before long they had even changed the parking lot signs, so that the word employee effectively disappeared from the location. Then other locations began to catch on, and soon the president of this national company was talking about business partners in the internal newsletter. The final piece came when a large customer wrote a thank-you to a vice president, calling the employees of this company business partners. The new language, in turn, was reflected in greater commitment, more involvement, and better results.
We know that it’s hard to make this kind of change. It is a never-ending effort if it is to be successful. We just think that if the financials are out there and the key concepts repeatedly explained, every employee in the place will be more trusting and more loyal, and the company will be stronger for it. To be sure, publicly traded companies can’t show consolidated financials to employees except once a quarter, when the information is released to the public. But they can certainly make a point of explaining those financials when they are released. In the meantime, they can make sure that employees see operating numbers for the department or facility they work in. Privately held companies, of course, don’t face the same constraint. If you run a sole proprietorship or a closely held business, you have an advantage in that you can share as much information as you want to.
And don’t be afraid to share information. Are you worried that competitors might use the information? Even if they did somehow get their hands on your income statement, they don’t know what you are doing internally to get to those results. Or are you worried that employees will see the numbers and ask for a raise? More likely, employees assume the company is making more profit than it actually is. And when you talk about investments in the future of the business as well as returns to shareholders, they’ll have an even better understanding of why all the leftover cash doesn’t go to payroll.
You can see that we believe passionately in the power of knowledge—and when it comes to business, we believe most of all in the power of financial knowledge and the financial intelligence necessary to put it to work. Financial information is the nervous system of any business. It contains the data that shows how the business is faring—where its strengths are, where its weaknesses are, where its opportunities and threats are as well. For too long, a relative handful of people in each company were the only ones who understood what the financial data was telling them. We think more people should understand it. They’ll be better off for gaining that understanding, and so will companies.
We also believe that you are in a unique position to build this kind of organization. As an entrepreneur, you have already shown that you are willing to take risks on new ideas. You are willing to do things in innovative ways. You depend on the enthusiasm and cooperation of your managers and employees, and financial literacy helps build both. Financial intelligence, in short, provides the foundation from which you can catapult your business to the next level. We hope that you do.