From the August 2008 issue of Entrepreneur

In 2005, Randy Haran happily shared his company's financial details with employees. Texas Air Composites Inc., which performs repairs for airlines, had sailed through a banner year as sales doubled and profits soared. Hourly workers cashed profit-sharing bonuses equal to about a third of their earnings. But in 2006, his airline customers tightened their belts, his competitors sharpened their aim, and employees found themselves working harder and earning less. "It was a very challenging year," he says.

Yet Haran, 44, kept sending new hires to a four-hour financial literacy class and updating employees weekly with figures and forecasts on sales, margins, debt and cash flow. In fact, as his emphasis switched from maximizing bonuses to preserving jobs, the DeSoto, Texas, entrepreneur never wavered from his commitment to keep the books open in good times and bad. "When they don't have the money that they once had, some will bellyache," Haran says. "But others will figure out how we can make this work."

Entrepreneurs who are reluctant to share information with employees during challenging periods risk losing workers' trust, says Cal LeMon, a management consultant and corporate educator. "If leadership changes what they're communicating when times are tough, it becomes a very con-fusing message," LeMon says. "The really gutsy people in the ownership culture say, 'Come hell or high water, we're going to let you know exactly where we are.'"

When sharing bad news with your employees, try framing it differently. For example, set up a working session to search for solutions during tough times. It can actually help get results if workers are feeling anxious. "Leverage that," LeMon advises. "Say, 'This is scary, so we need a new idea.'"

Sharing information isn't risk-free. Some employees may leave when told exactly how bad things are, LeMon says. In bad times and good, entrepreneurs need to take care not to reveal proprietary information that might give competitors an edge. And it takes sensitivity to pass on disheartening developments without appearing either too gloomy or too insouciant. "You [can] package it differently," LeMon says. "But the essence is [to] constantly report the news, whether it's good or bad."

As his business soured, Haran's sessions with employees focused on how external factors such as markets, costs and competitors affected Texas Air Composites. Those who left in bad times were typically the ones everybody wanted to leave, he figures.

Eventually, the news improved. "Right now we're doing better than we [were in] 2005," says Haran, who expects revenue of $22 million this year for his 120-employee company. "And I think it's because of educating each employee."

Mark Henricks writes on business and technology for leading publications and is author of Not Just a Living.