While evaluating a new client, I participated in their management meeting where The Boss and the department managers were reviewing their financial performance from the past month. They were evaluating the financials by department, going over the expenditures line-by-line. I began to ask questions about the sources of the expenses. I received some very vague answers in some cases and in others, I was told, “I have no idea”.

I observed that the department managers didn’t know what “success” looked like. They didn’t have a year-over-year comparison to benchmark their performance, nor did they have an annual operating budget to use as a goal for the month, quarter, and year. I asked The Boss if he set goals for his managers. He said he shouldn’t have to, they are the managers and they should know what they must do to be profitable. “That’s what I pay them for” was one of his responses. I said I understood his position and I often run across owners who have this same viewpoint. But this approach by The Boss will not create the results in the owner’s equity that The Boss desires.

After interviewing each of the department managers, I gained some more insight on what was one root cause of the problem. Each manager echoed the same message; they were profitable, and they thought they were doing well. In their opinion, The Boss would seldom give them guidance as to what “success” looked like for each of their departments. They assumed “success” was simply showing a profit. The Boss figured each department manager should know their jobs and understand how to achieve the most profit possible for their respective departments. I this case The Boss truly underestimated what his department managers didn’t know. They had no idea what The Boss considered as “success” for their departments, there was a huge gap between the department managers and The Boss in this area.

We set out to define “success” in each department and, with the department managers participation, we developed an annual operating budget, identified each department as a “profit center”, then input the results into their accounting software, and eventually began to analyze the financial performance of each department (profit center). Each month the department managers would ask the accounting department about any irregular expenses they did not understand, they came to the monthly managers meeting with solutions in hand to correct any issues, so the problem did not continue for another month. The Boss was very happy with the results and the department managers had defined goals and financials that let everyone know what “success’” looked like. This allowed the company to celebrate their wins!

The Boss must stay fully engaged, defining what “success” looks like, and holding employees accountable for their actions. The Boss must not underestimate what the employees don’t know, for when The Boss does this, most often nothing but bad happens. Plan for “success” and your owner’s equity will improve.