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Power of Financial Transparency With Employees (Article)

Like most CEOs I work with, I used to subscribe to the philosophy that I shouldn’t share my company’s financials. I understood how the money needed to be spent and I was positive that by disclosing specific dollar amounts, employees would spend money haphazardly or they would be afraid if they “knew the truth”.

To be honest, I had experiences with employees that didn’t reinforce my trust in their ability to make good spending decisions. While boarding a flight to New York, for instance, I realized one of my more senior contractors had booked herself in first class. I have also had employees try to expense everything from dental floss to mascara.

So, if I let on the amount of money we were making and planning to spend on a project, I wondered if they would haphazardly spend the money just because it was there. Or if we had a bad quarter and cash was tight, would they head for the doors?

But in order to grow the company, I knew I had to start telling others about our finances. I was a bottleneck to growth because I was the only one who understood how money flowed through the company.

Divulging a Little Is Not Enough

My first step was to speak about broad numbers, similar to how a fundraising campaign is tracked. I converted our high level goals (sales quotas and invoicing for example) into percentages. For example, if we were targeting $1 million for a given quarter, I would represent that number as 100%, and then let on the percent of achievement throughout the quarter. My hope was that this would be enough to help employees make decisions about how or if we could spend money. Unfortunately, this didn’t help. The broad percentages were not real enough to be understood.

Specific Numbers Align the Organization

After taking a very deep breath and then reading about the success of open book management at other organizations, I started to relay more specific dollar amounts to the team. Our budgets are now based on actual numbers, not just percentages, so the team can track progress toward our financial goals. The results have been amazing.

By opening up the books and allowing others more transparency, more people on the team have a deeper understanding of how the company makes and spends money. And because key employees now know the budgets and review them regularly, we have organizational accountability. I created a true “controller” role. She has been able to save us a lot of money by taking a close look at our spending, negotiating better rates with our vendors on expenses like office supplies, and implementing better tracking of expenses and billings.

I had to learn through trial and error. But now, with more disclosure, I am not the only one who is aware when spending on a line item or project is inappropriate. I also learned that when department heads are aware of what their group’s “cost” the company, they are more motivated to keep spending in line.

You’ll See Results–Fast

One year, my company made no more revenue from year to year – 0% growth. In fact, the company spent more money building out new research about social media and television convergence and holding a virtual conference. But the company was more profitable because of closer attention paid to where dollars were being spent. If it hadn’t been for increased awareness of the dollars involved, we would have lost money.

I was reluctant to peel back the curtain and expose the numbers. Yes, I had an issue with control; it’s common among entrepreneurs. But in the end, being transparent with my employees has given them the tools they need to stay on track.