Is your company an open book?
The idea isn’t really all that radical in an era when you can find out just about anything about anybody by Googling them. As a small business owner, though, you might think that your private financial data is, well, private. Why share it with your employees, your suppliers or, for that matter, your competition?
Because it can help retain your employees, demonstrate your needs to potential investors, and explain to vendors how you’ve structured payment arrangements.
Consider social media start-ups Tint and Buffer, which are so committed to complete financial transparency they published a real-time revenue dashboard using an application called Barametrics that displays, among other financial data:
- Monthly recurring revenue
- User churn
- Customer transactions
- Incoming payments, charges, cancellations and refunds
Related Article: 5 Money Management Tips For Any Business Owner
Why Have Open Books?
Tint and Buffer believe such an open-book policy makes them more accountable. Knowing that their successes, as well as failures, are easily accessible for anyone to see pushes them to increase revenues, decrease user churn and work harder to grow business. The bottom line is that by maintaining open books, they create more open and lasting relationships with employees, investors, partners and suppliers.
It’s hard to argue with success. According to NextBigWhat, Tint has more than 40,000 brands using its media aggregation service and over 3,000 paying customers. A little under a year after launch the company hit $1 million in revenues. Co-founder Nikhil Aitharaju says that publishing the company’s bank balance, individual equity shares, financial projections and other aspects of the company keeps the founders and employees motivated. Transparency and accountability will push the company to grow faster while encouraging customers and investors to trust their business relationships. Furthermore, the company believes that sharing its financial data may help other entrepreneurs.
That said, Tint just recently decided to remove its dashboard from public view. The fear was that they might be disclosing insights to potential competitors. Still, Tint says it remains committed to a transparent culture. It just hasn’t figured how transparent it can be without giving away the store to its competition.
Related Article: Dollars & Sense: How to Build an Accounting System for Startups
Open Your Books to Certain Readers Only
The lesson here perhaps is that rather than open your books to everyone and anyone, you should only share financial data among employees and select partners and vendors. Among the benefits of this are:
- It fosters a cooperative team culture. Everybody knows what everybody is paid, and why. If you employ a team bonus incentive program, everyone works harder knowing that their collective efforts can pay off for everyone. Jealousy of individual employees who earn more is less likely when peers know exactly how that extra compensation is determined and, moreover, how that individual’s efforts also contribute to overall team compensation.
- It builds trust. Rumors and rumors about rumors are instantly squashed. There’s no speculation about what’s going on in your company because it’s right there for anyone who cares to look. The more your employees and partners know about your business, the more they understand exactly what you are doing and the more likely they are going to be in step with your goals. You trust your employees by being transparent, and employees trust that such transparency means you have nothing to hide and are operating in everyone’s best interests.
- It makes employees feel like stakeholders. Employees are less likely to feel they are just getting a weekly check from you. Transparency displays how the collective effort of employees moves the company forward, and how everyone can share in accomplishments.
- Suppliers and partners understand your financial situation. They are more willing to maintain relationships when payment periods change or there’s less business for them when they know your financial picture dictates new terms, and that you aren’t playing games with them.
Open Book Management Isn’t New.
Open books aren’t new. The difference is that today’s entrepreneurs have technology to make such transparency apparent in real time. As The Street points out, the theory was first put into practice in the early 1980s by Jack Stack, CEO of Springfield Remanufacturing. Subsequent studies show that open book companies are higher performers and more productive than companies that aren’t.
Maybe you don’t want the book of your company circulating where any one can open it. Just ask Tint. But you may want to give a library card to your employers and partners to further incent them to work even harder towards your mutual common goals.