Financial Transparency: Everybody Wins When Everybody’s InOct 22, 2020
Financial transparency is about opening the books to everybody in an organization, letting them see how financial functions operate. It’s not uncommon, especially in small business, for employees and owners or leaders to be divided by perception. Employees will think all their hard work is lining the lush pockets of executives and imagine them off on a yacht enjoying the good life while they slog through another work day, enjoying the spoils of their efforts. Meanwhile they’re unaware that executives or owners are sleepless at night wondering how they’ll make payroll or if they should take on more debt. Misconceptions and misperceptions like these can impact morale, loyalty, and other cultural aspects of a company – as well as the top and bottom line.
Achieving Better Financial Transparency
Becoming a more financially transparent organization can help everybody see the values of their efforts in direct connection to business outcomes. Seeing behind the curtain can help rank and file employees better understand the roles and responsibilities others in an organization have, and how even small changes can have large impacts. When everybody understands that for every dollar that comes in, half of it goes to payroll and another quarter goes to rent and another dime to taxes – by the time it’s all squared away there might be a nickel left to show for everybody’s efforts. This can awaken everybody to be more thoughtful, active, and disciplined about saving those nickels and maybe even squeezing another penny or two out of the dollar.
Introducing The Great Game of Financial Transparency To Your Company
The book The Great Game of Business from Jack Stack introduces the concepts of open management. It’s good to start slowly – simply share more numbers with employees, get leaders comfortable with being more open and transparent. Spend time in discussions and workshops with employees getting everybody financially literate to what’s meaningful to the company and help them see how their own role or department contributes. This can easily lead to meaningful incentivizing. In one company, a bonus pool was created and performance targets were established. Hit the targets, tap into the pool. This was no risk for the company – they weren’t out anything if performance targets weren’t hit, and it put more context around earning the bonuses for employees. In no time employees weren’t just involved, they were engaged. They were mindful of how to use less resources – even toilet paper! – to save the company more money (widening the pool or getting closer to targets.) Everybody from the janitor to service technicians understood where the company was financially on a daily, weekly, and monthly basis. They didn’t understand debt and equity and the entire balance sheet, but they didn’t have to – but over time those concepts were introduced. Soon everybody in the company better understood inventory, cash reserves, receivables, and how sales and expenses drove financial health not just for the business but for their own pay and ability to earn bonuses.
Everybody Wins When Everybody’s All-In
Better transparency helps people care more about the decisions they make. In the 2008 recession we saw a company use better transparency to reinstate stalled 401k contributions, challenging everybody to hit a performance mark each month for 3 months. Transparency can take they mystery and misperceptions out for employees, which also remedies emotions or even unconcern that can be part of the day-to-day. For instance, employees in the delivery department of a company were regularly eating small delivery charges because, in their eyes, it amounted to four or five cents of meaningful revenue. When they understood the value of these small charges better and simply stopped that behavior, delivery charge income doubled for the company – which had extenuating impacts on other income, like maintenance and contracts. Imagine doubling the income from a department not by doubling the number of employees or deliveries or other harder, more expensive methods – but simply by stopping inefficient behaviors because employees better understand their value.
Financial transparency works great in some companies. Especially when started slowly, meaningfully, and with the intent to develop literacy around how the business functions. In short time – and then over years to come – just having more information and context for it can transform an organization’s entire financial picture.