7 Stories Hiding in Your Financial Statements

When I’m asked to explain the best way to talk with employees about company financials, I am reminded of an old axiom from Jack Stack, “Numbers are just stories about people.” And it’s true. All numbers on your financial statements have a story behind them – a story that explains how it came to be.  When you communicate numbers and the stories behind them in accordance with open-book management, they take on a whole new meaning. Employees will begin to understand the “why” of what they do and how they can make a difference. Here are 7 things to help you “get to the stories behind the numbers”.

1. Variances (‘red flag’ management).  At Great Game companies, team members are encouraged to explain variances from the budget of plus or minus 5%. This gives your team the opportunity to troubleshoot a problem or plan for future opportunities.
2. Benchmarking. People play better and smarter when they know what game they’re in. You probably already have industry benchmarks that you measure against. Make sure you don’t become complacent, because things change fast in business. Revisit your competitive intelligence at least twice a year, if not more often.
3. Trends. Industry trends are a great indicator of how your numbers might move. Make sure your team is keeping an eye on trends as one more way to help make your forecast as ironclad as possible.
4. Records Among Your Team. If you’ve broken a record, it’s time to celebrate. It could be anything from a sales record to a safety record; no matter what, use record-breaking numbers as an opportunity to praise your team for a job well done. Be sure you talk about how you got there and why this milestone is important. Then ask, “Now what’s possible?”
5. Relationships (with other numbers). Of course, there are several sets of numbers on your income statement that have a clear correlation (Sales & Cost of Goods Sold, for example). However, be sure to point out relationships that might not be so clear. For instance, if your sales team lands a huge contract, it’s important to educate your team on the impact that growth will have on other areas of the business. An increase in sales could affect many other lines, including an increase in Wages & Benefits, for example.
6. Line-of-sight. Never stop connecting people with your Critical Number™. Asking people to think and act like owners is not ‘normal’; we must teach them things they didn’t learn in the outside world. As you grow, remember that new people need lots of reinforcement and education on the impact that their daily decisions make on the business.
7. Forecasting (cause-and-effect). In the book The Great Game of Business, Jack says “Control the forecast and you control the world.” It’s true. When your team consistently forecasts outcomes in your business, they will get very good at it. Shifting from a backward looking-organization to one that looks forward gives you the competitive edge you need to build a growing and sustainable company.

By communicating your numbers in this fashion, you’ll see a greater interest in the strategy and goals of the company. Team members will understand the stories behind the numbers and what it means to their success as well as the company’s success.  You will see a higher level of teamwork - as silos are brought down through a deeper understanding of the need for each role or function in the company to deliver lasting results. I challenge you and your team to begin integrating these stories the next time you discuss your company financials; you’ll be astounded at the difference it makes.