Why You Should Be Transparent With Your Employees
How much do we tell the employees about the money in the business? For small and mid-size business owners, there is often a lot of anxiety about sharing too much information. For employees, there is a strong desire to understand the business and its prospects for the future. If you are a privately held company, balancing this is tough. Here are some general guidelines:
- Don’t give information without education. Providing any financial reports regardless of whether they are summaries, or complete traditional reports like your balance sheet, P/L and budget, should always be provided with a thorough education as to how the employee can read the data. It is possible that your employees do not have the background or training to fully understand these documents, so giving them the documents without education can be little more than distracting.
- What’s it mean to them? When looking at the information that you provide, there needs to be a clear summary telling the employees what it means to them. They will likely have lots of relevant questions:
- Is our company getting better or worse? More stable or vulnerable?
- Is my job at risk?
- What are we investing in to make us more successful in the future?
Employees look for context and relevance to the numbers.
- What can I do? Along with providing context for the numbers themselves, it is also important to provide a road map for what you are doing as a company with the information and an ask for the employees. The ask during positive periods is simple–Keep doing your great work! The ask during negative periods may be around cost cutting, trimming waste, or helping to sell more. Be specific. Employees who believe in your company and its leaders want to know how they can contribute to its growing success or to overcome its current rough moment.
What to tell them–
Every owner has a right to his or her own level of comfort in your transparency. I will also tell you that the companies who are attracting the best talent are moving towards greater transparency because smart employees want to know what is going on in the businesses for which they work. Here are some items you should consider when presenting and discussing the company’s finances with your employees:
- State of the industry–A regular discussion of the industry and how it is performing provides good context for the employees as to how the companies’ numbers should be considered. Even though they hear economic indicators in the news, what these mean to your industry and their jobs is much more relevant to them. By providing them this overview, your numbers have a frame in which to fit.
- What we do with profits–Somewhere in the media a misconception has been created about profits, that in some way they are bad or that there is a level that is too high. Part of this misconception comes from a lack of understanding of what owners do with the profits. Give your employees some perspective what is being re-invested, what is sustaining operations, what is retiring debt and what is being distributed to shareholders in general terms gives a clearer and probably a very favorable picture.
- What are we investing in–If you tell an employee “One out of every four dollars of profit last year was re-invested in equipment, plant and infrastructure,” he will understand that the investment was in keeping the business going and growing. Amounts are not as important as context and ratios to demonstrate where the money is going.
- Relative financial strength to like companies–Everyone wants to know where the company fits compared to other companies. They could be companies of similar size, in the same industry, region or even competitors- you choose. It is important to give a sense of performance in context.
- How the company is performing against its budgets and forecasts–Decisions mid-year are often made with an eye towards these performance indicators. Providing milestones and measures against those milestones helps.
The days of blind trust of the owners with the financials of the business have passed. People are concerned about the viability of their company, their own jobs and have they bet on the right horse. People will stick with you through rough times if they know what is going on and see a path to success. You do neither you nor them a favor by holding onto to the information because the speculation will always be there and without data, it will likely be negative.