The Illustrated PL

 
* * *

Revenue Watching
"People are watching those sales numbers and pushing us to improve them all the time," Reuther notes. "They know a dip in orders can mean a cut in their hours. That's what happened last year when we had two bad months in a row. I heard it from John Sudar [a mold designer whose father had also been an employee]: 'Didn't management see this coming? Why didn't we do something sooner? Let's go out and sell Reuther Mold, not wait for orders.' "

"When you get a little bit more information, you start to question a little bit more," Sudar confesses. "We'll ask questions like, 'Hey, we took this job two years ago and lost $20,000 then, what the hell did we do it again for?' Everyone from the shop floor supervisor all the way up to Karl comes under scrutiny. People want to know how much we spent entertaining customers or why we quoted so low on that job."

* * *

Understanding Depreciation

" Depreciation is probably as hard a term as any to explain," says Reuther. "My accountant says I make it sound too much like a freebie -- an IRS giveaway -- but people here understand it. Our committee that buys equipment is insisting we buy equipment this year so we can keep our depreciation up. They know that it reduces taxes and that they get it back in Cash Available. Even if a new purchase might reduce bonuses this year, it will improve profits and fatten bonuses down the road. Without this explanation, the committee would have never understood how depreciation works on a P&L sheet."

* * *

Cash Versus Profits
"We came up with a bonus formula that was really simple," says Reuther. "You're eligible after 90 days. And you're going to share 20% of the after-tax profits. Sounded good. But we realized that if we are paying a regular bonus, we have to have the cash to cover it. So I've got to explain to people how cash is generated. If it gets too complicated, then what will happen? Nobody will believe it."

"To distinguish profits from cash," Jerry Biltz explains, "Karl often refers to your own monthly budget, your own family life. Though you have so much worth, you have expenses. You have some cash left over, but you buy things with that cash. People are starting to realize that you can say you made half a million dollars in profit, but there are still the expenses of paying for equipment, paying down loans, and repurchasing the stock."

"It's time that workers understand a balance sheet," says Reuther, "because that's where profits go. They see us make $500,000, $600,000, and they think, Gosh, where's the cash? Why aren't we getting bonuses? There may be no cash at all. We may have made a lot of money, but it's all in accounts receivable and payroll. I don't think people realize that we have $4 million tied up in work in process and accounts receivable."

* *

The Surprising Cost of Doing Business
"What surprised me," recalls Krompass, "was the cost of materials. You never think when you're looking at a 30,000-pound piece of steel that it costs more than $1 a pound and there's $30,000 just sitting around the shop." And when you see the direct-labor dollars, "it's unbelievable," adds Jerry Biltz, a purchasing manager. "I had no idea that payroll and other operating expenses were that great."

* * *

The Power of Repetition
"The repetition helps," Reuther says. "Cash available minus cash needs leaves available extra cash -- our worker-owners have seen it and seen it and seen it. It is critical that they understand this. It's their business. So the format is repeated. The same financial statement that I give on the owner-share-bonus calculations is published monthly in my newsletter. I will do four-and eight-month statements in my newsletter, too. People see a statement and there's a confirmation that, yeah, this one is like the last one that Karl talked about. So our credibility is continually reinforced."

"You have to be willing to commit yourself to the educational process," Schlegel says. "You can't do it one time and expect everybody to understand it. Karl goes over the annual financial statement every year with all of the employees in a meeting that takes half the day. It costs $60,000 in downtime to hold all the meetings we have in the course of a year. People know that, and we've all become more aware of using meeting time in general for productive work."

* * *

Building Credibility and Participation
"When we first started coming out with this owner-share-bonus plan, there was a lot of cynicism," Sudar recalls. "But we've had three checks a year for two and a half years. Give out eight or nine profit-sharing checks and people start believing it." Says Jerry Biltz: "We used to have a dozen supervisors concerned about productivity and costs. We probably have 50 people thinking about it all the time now."

"You know what happened the other day?" Reuther asks. "A guy came in from the shop and said, 'These numbers don't add up.' He had crunched the numbers on his own and found a discrepancy. That shows me people are looking at the bonus report, analyzing it. They're checking everything. Some people are keeping my newsletter for the financial statement every month. So they have a better record of what the company's doing than I do."

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