I’m a big fan of what’s called open book management. This is where you share your financial results and numbers with everyone in your company. Even better, it’s where you not only share financial information, but you also build a compensation system based on your company’s results.
I always, yes always, get pushback when I bring this topic up. The usual comment I get is, “I can’t share my numbers, what if my competitors see them?” My reaction is always, “So what, do you really think your competitors will learn anything useful?”
You need to know the difference between numbers that do and don’t give you a competitive advantage.
There are some measurements you have in your company that show whether you have a competitive advantage over others. Those are things you don’t want to share. I’ve never found and never had anyone show me one of those numbers that exist in a profit and loss statement, balance sheet, or cash flow statement.
It’s sharing the numbers from the basic financial package where I always get pushback. I get comments like, “I can’t show those numbers, my employees might learn how much money I make.” My reply is, “So what, your employees don’t care how much money you make.”
Run this experiment now
In fact, here’s an experiment I want you to do. Right now, stop reading and go outside your office. Grab the first three people that walk by and tell them one thing; how much your business does in gross sales. Then I want you to ask these three people what they think you make in profit. If you’re employees are like the hundreds I’ve quizzed over the years they’ll likely say somewhere between 40% and 60% of your sales is what you get to keep for profit.
Wouldn’t you like that to be true? Wouldn’t it be nice if that was actually your profits? Instead, why don’t you change course and share financial information with your employees. They might start to learn that you actually have costs in running your business. Even better yet, they might decide to get involved in helping you make your business more successful.
What you shouldn’t share with your employees.
You shouldn’t share how much everyone makes in the company. That could cause you problems even though I believe that most of the time people in small companies know what each other make.
You don’t want to share confidential information about customers that a competitor could use. This might be the margin you get on a particular sale or how profitable a particular customer is. You won’t want to share the criteria you use for choosing new customers to sell products to. That is of course, if you even have this information. Most of you won’t.
Here’s what you need to learn.
The issue here is that we think our company’s financial information is really secret stuff. I dare you to go through your standard financial information and find one thing your competitors could use to get a leg up on you.
If you think knowing what you have for gross profit is an advantage, think again. Your customers don’t care what your gross profit is, they care that you provide them with service and products they want at a price they think is fair.
On the other side of the coin, look at what good things could come out of this exercise. You could start to have employees who understand your business better. You could get employees who become more engaged in making your company successful. You might even get an idea or two from your employees about how you could make the company more successful and your employee’s jobs easier. I think that would be a pretty cool trade off. What about you?
We’ve put together a report we call Four Tiered Budgeting. This report will help you learn an easy method that allows you to do some strategic planning and budgeting that might actually be used. If you’re interested in getting this report, click on the button below.