Joy at Work
This is the title of a popular best-selling business book written by Dennis Bakke. In it, the author emphasizes the mostly overlooked importance of all employees at all levels understanding the basics of business. This includes how revenue is generated, why expenses must be managed and, most importantly, how profits are generated and to what extent. It is Bakke’s opinion that the more team members at all levels understand these important matters, the more they begin to behave as partners inside the business while adding to their personal financial acumen.
The lessons of “Joy at Work” resonate with me on so many levels. For the past several years, I have been teaching a graduate class in Financial Management and Analysis at New York University. While these are not business students per se, their lack of understanding of matters financial is significant.
In the course, we focus on the basics of financial reporting and I try to relate them to the students’ personal finances. For example, a P&L is really their checkbook. Money comes in (income), we pay the bills (expenses), and we hope there is money left at the end of the month. If there is, we are happy (profit); if not, we are dismayed and we have a short-term financial problem (loss). If there is a loss, we may have to go and visit our friendly banker, and there are only two things we can do when we get there. We either take out our money (withdraw from savings) or we take out its money (short-term borrowing and/or tap a line of credit).
As part of our balance sheet discussion, we talk about the importance of effective banking and borrowing relationships, managing cash and credit needs, and the difference between “good debt” (borrowing to build and expand the business) and “bad debt”, (borrowing to cover operating expenses or credit card debt). One of my favorite subjects is the magic of compound interest and how it works for you (saving and investing) and how it works against you (high interest, revolving debt). For most students, the first time we calculate simple installment interest is also the first time they have ever been exposed to what should be part of an educational requirement!
This startling lack of basic understanding of business, commerce, and finance affects just about every business. Some years ago, we worked with a member client who wanted his employees to gain a better understanding of where business expenses went and why it is so challenging to manage to a profit. We drew a pie chart and, on a percentage basis, showed large categories of expenses but did not label these. Instead, we asked the employees to guess.
The first segment (and the largest) the employees guessed was profit. In fact, they concluded to the business owner, “that’s you, that’s the money you make each year from the business.” To which the owner responded, that no, “actually, that’s you―it’s payroll and related expenses.”
With each category, each slice of the pie, the employees guessed that must be profit, but no, it was outside purchases, rent, etc. Finally there was one very narrow slice left. Exasperated, the employee’s response was to ask, almost in disbelief, “that’s our profit?! We go through all these things, all these expenses, all that work, to generate that?!”
We hear a lot about employee training, and this usually involves helping our team members perform specific job functions better with greater accuracy and speed. Here’s a thought: Let’s teach them about business, commerce, and matters financial. The payoff for us and for them could be significant.