Leadership and Financial Performance: What Your P&L May Be Telling You
When you look at a profit and loss statement, it is easy to focus on whether sales are up or down, whether labor is high, or whether you made a profit.
But I believe managers should ask another question:
What is happening in my business that caused these numbers?
Your P&L can tell you that labor is high, but it can't always tell you why.
It can show you that inventory costs increased, but it can't tell you where the waste happened.
It can show you that sales are down, but it can't tell you why customers aren't coming back.
That's where understanding your operation and knowing your team becomes important.
That is why I believe leadership and financial performance are more connected than we sometimes realize.
How Leadership and Financial Performance Are Connected
As a manager, there are going to be expenses you can't control.
You don't decide what the rent is. You may not set prices. You can't control the economy, and you may work for a company where many decisions are made above you.
But think about the things you can influence every day.
How well is your team trained?
Is your schedule built around the needs of the business?
Is inventory being managed correctly?
Are employees following procedures?
What type of experience are your customers receiving?
Those daily decisions may seem like operations, but eventually some of them can make their way into your numbers.
Labor Is High. Should You Just Cut Hours?
Let's say you receive your numbers and labor is higher than expected.
The first reaction may be:
We need to cut hours.
Maybe you do.
But before you start cutting the schedule, ask why labor is high in the first place.
Maybe employees aren't properly trained, so it takes longer to complete simply tasks.
Maybe you're constantly training new employees because you can't keep people.
Maybe your schedule doesn't match your busiest and slowest times.
Maybe employees are staying over because the shift isn't being managed properly.
Or maybe you really do have too many people scheduled.
The point is to find out.
If you only cut hours without understanding the reason, you may bring labor down for a week and still have the same problem next month.
The number tells you what happened.
Your job as a manager is to start asking why it happened.
What Is Your Inventory Telling You?
The same thing can happen with inventory.
Imagine a restaurant where food cost continues to increase.
You could immediately decide to order less.
But what if ordering isn't the real problem?
Maybe too much food is being wasted.
Maybe portions aren't consistent.
Maybe products aren't being stored correctly.
Maybe employees aren't following procedures.
Now take that same idea into a retail store.
Inventory may be getting damaged, merchandise may not be received correctly, or products may not be tracked properly.
Again, the number tells you something is happening.
Leadership helps you figure out what.
A manager should be able to ask:
Where are we losing product?
What changed?
Are we following our procedures?
Does my team understand why these procedures matter?
Those questions can help you get closer to the real problem.
Your Employees Can Affect Your Customers — And Your Numbers
Sometimes the connection isn't as easy to see.
Imagine constantly losing employees.
You're short-staffed.
The employees who stay have to do more.
Training gets rushed because you need someone on the floor.
Service begins to slow down.
Employees become frustrated.
Then customers begin to notice.
A customer may give you another chance after one bad experience. But if they continue to have the same experience, they may eventually stop coming back.
Now an employee problem has become a customer problem.
And over time, that customer problem can become a sales problem.
The same thing can happen in retail or almost any service business.
If employees don't know the products, aren't being trained, or don't feel responsible for the customer experience, customers can walk out without making a purchase.
That is why I believe managers need to understand the connection between their people, their operation, their customers, and their numbers.
Your Team Needs to Understand the Why
Leadership isn't just telling employees what to do.
Sometimes people need to understand why you're asking them to do it.
If you're constantly telling an employee not to waste product, do they understand why it matters?
If you're asking the team to improve productivity, do they understand how productivity affects labor?
If you're emphasizing customer service, do they understand that repeat customers help keep the business growing?
I'm not saying every employee needs to sit down and review the company's entire financial statement.
But I do believe employees can benefit from understanding how the decisions they make every day affect the business.
When people understand the why, the conversation changes.
You're no longer just saying, "Don't waste that."
You're helping them understand that waste has a cost.
Don't Just Manage the Number
This is where I think managers can make a big difference.
Don't just manage the number.
Understand what is driving it.
Labor is high. Why?
Inventory is high. Why?
Sales are down. Why?
Customer complaints are increasing. Why?
Sometimes the answer will be outside of your control.
But sometimes the answer may be sitting right inside your operation.
And if it is something you can influence, now you have somewhere to start.
Beyond the Books
A P&L shouldn't only be a report that gets looked at at the end of the month and then put away.
It can help you understand your business.
When you know what the numbers are telling you, you can start connecting those numbers to what you see happening every day.
Maybe the answer is better training.
Maybe it's better scheduling.
Maybe inventory procedures need attention.
Maybe the team needs clear expectations.
Or maybe the numbers show that something you're doing is actually working and you need to keep doing it.
That's what I mean when I talk about going Beyond the Books.
The numbers tell us what happened.
But understanding the business behind those numbers can help us figure out why.
So the next time you look at your P&L, don't only ask:
Are my numbers good or bad?
Ask:
What are these numbers telling me about how we're running the business?
Because your leadership may be showing up in those numbers.
Understanding Your Numbers Is Only Part of the Story
Knowing what is happening behind your numbers can help business owners and managers ask better questions and make better decisions.
At Clorista Bookkeeping Services, I believe bookkeeping should do more than keep your records organized. Your numbers should help you better understand your business.
Beyond the Books is about looking past the numbers and understanding the business story behind them.
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