Money is the blood supply of every business. It courses through each department bringing life and growth, and without it, businesses die. Traditional advice has kept the realities of how well—or badly—a company is doing behind the closed doors of the management office.
Yet keeping employees completely in the dark about company finances is not a good idea in my experience. Tendencies can lie towards wanton spending or imaginations can run wild with fear, causing stagnation. Neither reaction is optimal for peak performance and staff wellbeing.
But how deeply into the company finances should a small business owner delve with staff?
I’ve always believed in transparency. From the day I hired my first employee, to the day we made the Inc. 5000 list for the first of five consecutive years, to the day we had to cut a few positions during a tight quarter, I’ve openly shared the company’s finances with our team. As business owners, I think we have a moral responsibility to do so. They’re not just resources: they’re people with families and lives outside of the office. They’re entitled to know where our strengths–and weaknesses–may lie. Most importantly, staff awareness increases morale, productivity, and makes everyone on the team develop true ownership of their actions.
Employees need to know how much the company is generating through their daily efforts, as well as the expenses required to generate that revenue. My team loves to share and celebrate the growth of various revenue streams. We also collaborate in finding ways to cut costs and increase the bottom line. It gives meaning and a sense of accomplishment when the team knows we hit a record month in sales or found a new process to cut expenses significantly.
I entrust my team with the financial pulse, and in return that transparency is rewarded with a truly engaged and dedicated team. Employees that help to increase our profits are rewarded with raises and bonuses, creating a win-win for all.
However, under no circumstances would I recommend that employees be told what other employees earn on their paycheck. In my experience, it will always create jealousy between employees and can cause irreparable damage to morale. Payroll should simply be shared as a single total amount without providing a breakdown, even between departments.
Of course, providing financial information openly does come with some risks. You may receive criticism for how you spend (or don’t spend) your company funds. I recall one employee criticized a new—and somewhat risky—plan to increase revenue for a developing project. He was quite vocal during our meeting, and the rest of the team was left a bit stunned in the wake of his opposition. A few weeks later this employee resigned, though the “risky” plan had panned out and resulted in very profitable revenue generation.
In the end, we both won. Being clear about where the company is financially clarifies the mission, and weeds out those who cannot see the vision and embrace a corporate culture of change and growth.
You may also hear griping about one department getting funds for a project while another has been told to hold out. I can honestly say you’ll likely hear concerns even if you are not transparent: but at least there will be nothing left to the dark corners of the imagination if your staff knows you’re being up front about everything.
So far I’ve shared advice that assumes the company is growing, or at least maintaining, a healthy profit margin. But what if you are beginning to lose money? What if the company is in trouble, and jobs are possibly going to be cut? Even in this unfortunate scenario, I highly recommend being honest and upfront with your employees. They deserve to know if their job is in serious jeopardy, and prepare to take measures. And the sooner you know, the better it is to share.
Lastly, I would strongly suggest you find a way to always keep financial reporting positive. Stay on a high level without getting mired in details. Keep everyone energized by the revenue their day-to-day efforts generate. When a time arises that you are forced to deal with negativity, such as when a company is going out of business, be honest and sincere, and give your employees the heads-up. They deserve transparency.
A truly cohesive team is one that knows we’re all on the same page, and we’re all fighting the same battles and winning—together.
About the author:
Brandon Vallorani is a practiced entrepreneur and accomplished CEO. He is the founder of Vallorani Estates, a luxury brand of fresh-roasted coffee, wine, cigars and olive oil. He’s also the author of the new book “The Wolves and the Mandolin.”