A look at employment from the perspective of analyzing financial statements
Some may be fortunate to work at a place where they feel valued and appreciated. Finding an employer that values your work/lifestyle balance can be difficult. During trying times at work, many employers would prefer you to find solace during your personal time. Just make sure you are back to work at 9 am. Outside of taking a sabbatical, risking potential career suicide, it is almost impossible to tackle one’s bucket list while being gainfully employed and being young enough to enjoy it.
It isn’t that your boss is heartless (although some are royal a-holes), it is simply the fact that your job could represent a key role in generating profits for the business owner(s). There are companies out there that provide profit-sharing and bonuses based on a % annual sales; however, these incentives are created to ensure that bottom dollar targets are met. In other words, business owners are in business for the sake of making money, not making friends.
A Quick Review of Financial Statements
Without boring you with the details, lets discuss two of the most important financial statements used to determine the success and effectiveness of a business operation:
- Balance Sheet
- Income Statement (Statement of Profit and Loss)
A balance sheet is used to determine a financial snapshot of a company. The financial statement is split into two sides: 1) Assets (Things you own) on the left 2) Liabilities (Things you owe) & Owner’s Equity on the right. The Owner’s Equity represents the net worth of a company, which equals to Assets (items that you own that can be sold for cash) minus Liabilities (debts you owe that requires repayment); therefore, the total of both sides are always equal. Unfortunately the old saying, “Employees are the most valuable asset” is actually inaccurate, as your employer cannot legally own you; although some employers make their employees feel that they are owned.
So if employees aren’t assets where are their efforts being analyzed? Balance sheets are great for calculating the financial worth of a business, which can be used to apply for business credit, gauge perspective investors, and/or entice new investors. A diligent investor would be inclined to reviewing the income statement of a business, which measures the profitability of a business over a set period of time.
You have to spend money to make money. Income Statements (or Statement of Profit and Losses) track all sales earned and expenses incurred over a set period of time. Paycheques, bonuses, and/or commissions are recorded on this statement. Unlike the balance sheet, which has two equal sides, the income statement would traditionally have the following order (top-down presentation):
- Other Income
- minus Cost of Goods Sold (aka COGS)
- Direct Labour
- Material Purchases
- Operational Overhead
- equals Gross Profit
- minus Sales, General & Administrative Expenditures
- Office Expenses
- Office Support Staff Wages
- Commissions on Gross Sales
- Management Salaries
- Professional Fees
- equals Earnings Before Interest, Taxes, Depreciation and Amortization (aka EBITDA)
Depending on the success of the business you work for, a business owner may only benefit from the dividends that are generated from a business. Dividends usually get paid after taxes and interests have accrued; therefore, if a business is small your boss may have very little flexibility to accommodate to your requests/needs. Another factor to consider is where your job responsibilities reside on the income statement:
- For those who are directly responsible for the creation of a product and/or service (i.e. Direct Labour – COGS), for each hour you aren’t working could correlate to products and/or services that a company may not be able to sell.
- To all the sales reps earning commissions only, each commission cheque not earned is revenues a company is not earning.
For everyone else who help manage the day to day business, your presence or lack of presence could be financially beneficial or a detriment for the company. Your absence could involve dumping your workload onto someone else (on top of their day-to-day tasks), or hire a temp in the interim (cross training would be imminent); however, many employees fear an extended leave from work could result in their own demise.
The trade off for pursuing employment over self-employment/business ownership is that you may earn a stable paycheque, as long as you do your job; however, with stability comes restrictions and limitations. Employees feeling neglected should not endure unnecessary anxiety from their job; therefore, if an employer is not accommodating to your needs then finding an employer that will should be a top priority.
Life is too short to sacrifice your best working years to an employer that does not respect you.