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The Importance of Financial Transparency in Your Business

Jun 14, 2017
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If the idea of sharing your business’ finances with your employees makes you nervous, you’re not alone. Few business owners disclose much, if any, financial information with their employees, but the practice of financial transparency is becoming increasingly popular.

The SEC defines financial transparency as the “timely, meaningful and reliable disclosures about a company’s performance.” When you’re transparent with your employees, though, it simply means you’re being open about the details of your business, and you’re not hiding anything. This concept can go a long way in improving company culture, morale and productivity.

Some of the benefits businesses may see as a result of financial openness include:

  • Improved Morale: Sharing financial details tells employees they are important to the business. This may motivate them to work even harder toward your company’s objectives.
  • Increased EfficiencyEmployees understand the financial facts and can make better decisions about their work. They start thinking like owners, not just time-card punchers. If employees understand the basic numbers, they can learn ways to move those numbers in the right direction, especially if an incentive bonus is tied to increased profits.
  • More Trust between Management and Staff: The veil of financial secrecy is lifted, which may lead to a deepened level of trust and confidence between you and your employees. Through your actions, you’re showing them that you trust them enough to keep them informed about vital company information.
  • A More Engaged, Loyal Workforce: Employees may feel more a part of the team, not just a cog.
  • Working Toward Mutual Goals: Teams and employee groups can track their progress toward mutual financial goals and may be motivated to keep costs down.
  • Consistent Messaging: When you practice company transparency, financial and in general, your employees won’t need to hear financial information through the uncontrolled grapevine. Instead, you and your leadership are sharing accurate information on a consistent basis.

Business owner, agrees this approach builds strong bonds. They have long been a proponent of financial transparency with employees, both during the good and the difficult times. “I have found that it can foster becoming a team and pushing together to grow the business. There have been times in growing my business where I couldn’t afford to give raises, or I couldn’t give as large a bonus as the prior year, and sharing with employees the “why” creates understanding versus resentment.”

Thomas said transparency about company finances is beneficial, but once you open it up, prepare to commit to being honest and open going forward. “I’m here to say, it fosters the best relationships in terms of team building.”

Getting Started

  • When you first begin the process, be patient and start with small amounts of financial information, then increase it as employees become familiar with it.
  • Stress the confidential nature of this information, and let your employees know you trust them with sensitive data.

Share what you are comfortable with; you can always include more as your comfort-level grows. You can use percentages to show overall revenue and major categories of expenses, for example. Keep salaries as a lump sum, as Dupéré does, to maintain appropriate confidentiality.

  • Present the information in a format that is easy to understand and absorb for non-financial people – try using images, diagrams and percentages. Share the information in a digest or summary format.

Encourage questions and strive to provide answers that are easily understood. Take time, for example, to explain how to read a balance sheet or a profit and loss statement, since many people have no experience with those types of documents.

  • Talk about the big picture and explain how the company makes money and where it goes. Give various departments their specific numbers so they know what their goals are and what it will take to reach them.
  • Get your employees’ points of view as to how they see the finances; employees will feel valued, heard and part of the solution.

Giving your employees the information they need to become valuable, involved members of your team is the crux of financial transparency. Keeping them in the dark about critical financial information may feel more comfortable for some business owners, but it does nothing to empower your team. Sharing financial data, however, can drive daily decisions that can improve profits and retain engaged, loyal employees.

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