Having an Open-Book Policy

Show Them The Money

"I've always wanted to create a higher degree of commitment among employees, and I thought that was possible only if people had a greater understanding of how the company ran and how their area of responsibility fit into the whole," says Brogden. So over a period of time, sharing financial information became the policy at Masters. "The data goes out to key executives a week or so before our monthly meeting so they have time to study it," he explains, "and then we sequester ourselves for half a day or a whole day to discuss it."

Says Ra Broaddus, an Atlanta business advisor and a proponent of open-book management for all employees, "Each family business owner has to determine how far down on the profit-and-loss statement he or she is prepared to share. Often family businesses stop at the gross-profit level, and most keep salary information confidential."

If yours is a business with high levels of trust among the relatives and non-family employees involved, you've paved the road for sharing financial information. If that mutual trust isn't there, the concept is more difficult, but not impossible, to roll out, Poza says. "You've got to take steps to build trust. That might mean going out on a limb, like instituting a profit-sharing or bonus program," he says. "People begin to trust the family when they feel they're gaining something." But sharing financial information needs a well-thought-out plan. Here are some steps:

1. Educate the people who will be receiving the information."I don't believe in plopping data onto someone's desk and not explaining what's in it," says Brogden. Explain how financial statements are created, what goes into each line item, and how the operating results flow on the income statement and the balance sheet. Talk about appropriate actions that could be taken if there's a variation from the expected results.

"For employees, this type of education is like getting a custom-tailored MBA program," says Poza. And it helps people see the relationships between their work, the work of other departments and the company's bottom line.

2. Set goals at every level, for every business process.Determine the company's critical numbers--those that have the greatest impact on profits. Besides sales figures and gross margins, these numbers can be anything from past receivables to turnover rates.

3. Keep nonfamily executives up-to-date with the numbers.Everyone has to know whether the company is making money. Share the financial information with employees, "and if something important comes up before the weekly, biweekly or monthly meeting, let them know," says Broaddus.

"We track lots of indicators; each department has a series of these. At our monthly meetings, we use the data to discuss our theories as to why things are happening as they are and how we can improve the indicators," says Brogden.

4. Compensate people for their successes.Obviously, a nonfamily employee has to feel that the compensation is competitive with the broader market. But it goes beyond that. If you're going to ask people to think about profits the way you and your family do, "there should be a group bonus based on achieving profit goals," says Broaddus. Individual achievements can also be recognized with bonuses. If the business doesn't reach its profit goals, employees don't get a cut of the action.

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This article was originally published in the March 2000 print edition of Entrepreneur with the headline: Open-Book Policy.

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