Open-book management is not a new concept, but one that some leaders may be hesitant to adopt. The idea behind this management style is to share financial information with employees rather than keep them in the dark, which helps them understand the hows and whys of business operations.
Team members who lack business financial knowledge are left to make their own assumptions about the business’ money flow. They may feel they are simply cogs in a wheel, working hard and making money for the business owners, or assume that pricing strategies are greedy or arbitrary. An uninformed employee may be more likely to be discontent, but bringing team members into the fold can increase engagement, provide greater job satisfaction, and improve team culture.
The evidence behind open-book management success is mostly anecdotal, although this 2012 study found that companies using open-book management showed a 1.66% increase in sales over those not using the management style. In my experience, open-book management can have a transformative effect.
The benefits of open-book management
Open-book management can positively impact your business and your employees. Benefits of implementing this management style include:
- Enhanced employee engagement — Employees with financial visibility understand how their contributions impact company performance. This fosters a sense of ownership and commitment and leads to increased engagement.
- Improved decision-making — Financial transparency enables team members to make better decisions that are aligned with company objectives at all organizational levels.
- Culture transformation — Businesses that openly share financial goals and performance metrics create an accountability culture that encourages individuals to take ownership of their progress and results.
- Enhanced trust — Open-book management builds trust because the culture demonstrates a commitment to the team. When employees feel important and included in the organization, they are more likely to act in its best interests.
- Goal alignment — Sharing performance metrics and linking them to a bonus structure can incentivize behaviors that drive profitability and growth and reinforce a shared sense of purpose.
Getting started and avoiding pitfalls
From my personal experience, open-book management can feel uncomfortable at first, and you must be wary of the potential downsides of sharing too much. A key question is, whom are you sharing information with and what are you sharing? I have learned that you must be selective about who sees the most sensitive information. Salary and budget information can be particularly problematic, and I’ve lost team members through misunderstandings in this arena. Now, I’m careful to create transparency in a healthy way by sharing information within reason and considering each person’s role in the company.
Start by holding a meeting with your team and sharing general business financials that should touch on the following points:
- Why profits matter — Discuss why profit is important to the business, emphasizing that profit isn’t only for the business owner to line their pockets, but also to provide the funds needed to re-invest in and grow the business.
- Owner contributions — A financial sharing session creates a safe forum to discuss the risks, debt, and sacrifices the owners have taken to build and maintain the business, which can foster respect and understanding.
- Interpreting P&L — Teach your team how to read a profit and loss statement. Share how revenue is made, what COGS are, what OPEX is, and how depreciation on equipment works.
- State of the business — After covering P&L theory, you can incorporate your actual business numbers and spark an interactive discussion with the team. Ask team members to estimate figures or explain why numbers are higher or lower than expected, which can be eye-opening for those with little business understanding.
Team members will need several meetings to become comfortable with learning about financials, but ultimately many will greatly appreciate the transparency and feel differently about their jobs and employers. We incorporate this practice into our VetBooks business strategy and feedback from team members past and present has shown they truly enjoyed feeling part of the bigger picture and learning how their contributions shaped the business.
You will feel uncomfortable in the beginning, but the end payoff will be worthwhile.
Need help getting your books in order before sharing them with the team? Let VetBooks help you streamline your processes and organize your finances. Set up a call to find out more!
