3 Reasons Employees Need to Understand Financial Statements (2024)

Reason 1

Understanding financial statements will help employees recognizehow their actions impactthe company's success or failure, the bottom line. For example, they can see the negative effect of choosing to unexpectedly not show up for work. They can see the positive impact of quality work and customer service. They can learn about about all of the various costs associated with payroll and other costs of doing business.

Reason 2

The new financial knowledge may lead toimproved leader / employee relations. The employees will now have a deeper appreciation of critical decisions that business owners and leaders have to make and the stress associated with some of those decisions. How will payroll be met next month? What is the ROI (Return On Investment) on the new piece of equipment or marketing campaign under consideration? Should the investments be made?

Reason 3

With this new financial comprehension, employees may become abetter source of fresh ideasfor increasing revenues, productivity and profits. Now, they will be able to think their ideas through more clearly because they will have a much deeper understanding of overall business operations.

When educating your employees about financial statements, the goal shouldn't be to prepare them to be accountants or CPAs. They probably don't need to know what EBITDA (Earnings Before Interest Taxes Depreciation & Amortization) stands for. Use a language that is easily understood. Depending on your business, perhaps profit will resonate more than earnings. Maybe materials and supplies are better terms than cost of goods sold.

What other benefits could come from employees understanding financial statements?