Michael Hornung tells his employees, “You don’t work for me. You work with me.” The president of ValleyGreen in Sartell, Minnesota, draws a picture on the white board of a wagon wheel with spokes. The wheel is ValleyGreen. Next to each spoke, he writes the name of an employee until the entire team is represented.
“We are all a spoke in the wheel,” Hornung says to his people, relating how their efforts keep the business moving forward. When a spoke breaks or is missing, the integrity of the wheel is compromised. “When I draw this and the team looks at it, they really get it. They really do,” he says.
Hornung wants his employees to realize that their performance impacts the organization. Those who lead crews or play supervisory roles are given the budget information they need to really understand the impact of their performance.
Who gets to see the books? Which managers get the numbers and which numbers should they see? Hornung subscribes to a modified version of open book management. The books are completely open to his operations manager and office manager. “They have to know what’s going on with the income and expenses,” he says.
For other managers, certain “pages” of the books are opened so they can understand budgeted numbers and actual revenues for areas of the business they are responsible for overseeing. For example, a manager overseeing marketing and sales will see just the marketing numbers. “But he doesn’t deal with the fertilizer expenses or truck repairs every day,” Hornung says, because that can get confusing.
If a technician learns that a crew can produce $1,500 a day, “That technician thinks, ‘Whoa, that’s a lot of money,’” Hornung says. “And yes, it is. But when you shake it out – vehicles, building costs, overhead expenses, administrative staff – the goal at the end of the day is a 10 percent profit margin.”
Hornung has taken the time to explain to his people how dollars are earned and spent in the business through a budgeting 101 workshop. But that can be risky, in a way.
“The big misconception is that all managers need all of the information,” says Jim Huston, president of J.R. Huston Consulting. “They don’t need to know how much the owner is making or the salary of employees or the profit of the company. They just need to know the gross profit margin for their particular division.”
Another set of eyes.
Not all owners are comfortable sharing the numbers, but they could end up keeping the books too close to their vests.
Who must see the numbers? According to Huston, the owner, the bookkeeper (or controller) and your CPA. “If you have a general manager, they’ll also be involved in the books,” he says.
If the owner is the only one involved, it creates a bottleneck.
“If all the decisions have to be made by the owner, and he or she is the only one with the information, you have to wait for the owner to address the issue. Instead, owners need to empower the people running various divisions to do their jobs,” Huston says.
When division managers have the numbers they need, “They make decisions that are closer to the client and to job performance,” Huston says.
Managers should gain access to scoreboards so they understand how their teams are performing and whether their divisions are profitable. They should see the sales and direct expenses: field labor, field labor burden, materials, equipment, vehicles, rental equipment and subcontractors. They should also know the target gross profit margin.
“You have books for two reasons,” Huston says. “One is to meet the income tax requirements of the IRS. Second is to make sure the business is operationally significant.”
Maintaining financial records is absolutely required by Uncle Sam. And, your books will give you that scoreboard information that lets you know whether the hard work you’re putting into the business is producing a profit, which is the point of running a for-profit organization. In order to be sure the books are sound from a tax and operational standpoint, share the numbers with those key people (bookkeeper, GM and CPA).
The benefit of at least one more set of eyes is catching mistakes. Hornung says that Huston has picked up on the tiniest blips on his budget that have opened up opportunities for savings.
“He’ll notice that my rent is a half-percent higher than it should be and ask, ‘Why?’” Hornung says. “Well, we have more square footage than we need, but no one else would have caught that. It’s great to have another set of eyes from someone you trust and respect.”
Sharing with a filter.
Every Friday morning at 8 a.m., Father Nature Landscapes has a financial meeting. It includes the owner, Andrew McCurry, his business partner, the office manager, project managers and the production manager. “We sit down and look at our register balance, payables, receivables, who we need to collect from and what bills we have written that week,” McCurry says.
Seeing the numbers helps the group understand where the business stands and what expenses are coming down the pike.
But not every detail of the budget is shared, McCurry says. Some money is “taken off the table” by his office manager when she prepares the report because dollars might be set aside to pay out bonuses. Since that money is not part of payables or receivables, it’s set aside – not part of the report the team views on those Friday meetings.
“We’re giving those bonuses as a gift, and we also don’t want to show inflated numbers,” McCurry says, noting that the money is earmarked. “We do show the numbers that are relevant to the managers.”
The fact that McCurry and his management team are on top of the numbers, reviewing and discussing them weekly, is the key. The practice emphasizes to managers the importance of constantly monitoring what’s going on financially in the business, measuring performance and working toward goals.
But, McCurry also recognizes that when numbers are passed around without employees understanding exactly what they’re looking at, the knowledge can be “too much information.”
Exposing every number can create emotional stress and even resentment if employees do not understand how a budget is built and what financial obligations are required to run a business, McCurry says.
It goes back to the wheel and spokes: when the team understands that their specific roles help move the company forward, they can be focused on doing their part. “When we do share numbers with managers, we want to be sure they understand those numbers totally,” Hornung says. “That is why they see what they need to know to do their jobs and to be part of the team.”