Make sure your staff understands how money flows through your company. You'll improve the bottom line.
When I first launched User Insight, I didn't tell anyone anything about the company's financials. I understood how the money needed to be spent and I was positive that by disclosing specific dollar amounts, employees would spend money haphazardly.
To be honest, I had experiences with employees that didn't reinforce my trust in their ability to make good spending decisions. While boarding a flight to New York, for instance, I realized one of my more senior contractors had booked herself in first class. I have also had employees try to expense everything from dental floss to mascara.
So, if I let on the amount of money we were making and planning to spend on a project, I wondered if they would haphazardly spend the money just because it was there.
But in order to grow the company, I knew I had to start telling others about our finances. I was a bottleneck to growth because I was the only one who understood how money flowed through the company.
Divulging a Little Is Not Enough
My first step was to speak about broad numbers, similar to how a fundraising campaign is tracked. I converted our high level goals (sales quotas and invoicing for example) into percentages. For example, if we were targeting $1 million for a given quarter, I would represent that number as 100%, and then let on the percent of achievement throughout the quarter. My hope was that this would be enough to help employees make decisions about how or if we could spend money. Unfortunately, this didn't help. The broad percentages were not real enough to be understood.
Specific Numbers Align the Organization
After taking a very deep breath and then reading about the success of open book management at other organizations, I started to relay more specific dollar amounts to the team. Our budgets are now based on actual numbers, not just percentages, so the team can track progress toward our financial goals. The results have been amazing.
By opening up the books and allowing others more transparency, more people on the team have a deeper understanding of how the company makes and spends money. And because key employees now know the budgets and review them regularly, we have organizational accountability. I created a true "controller" role. She has been able to save us a lot of money by taking a close look at our spending, negotiating better rates with our vendors on expenses like office supplies, and implementing better tracking of expenses and billings.
I had to learn through trial and error. But now, with more disclosure, I am not the only one who is aware when spending on a line item or project is inappropriate. I also learned that when department heads are aware of what their group's "cost" the company, they are more motivated to keep spending in line.
You'll See Results--Fast
User Insight made no more revenue last year than the year before. In fact, the company spent more money building out new research about social media and television convergence and holding a virtual conference. But it was profitable because of closer attention paid to where dollars were being spent. If it hadn't been for increased awareness of the dollars involved, we would have lost money.
I was reluctant to peel back the curtain and expose the numbers. Yes, I had an issue with control; it's common among entrepreneurs. But in the end, being transparent with my employees has given them the tools they need to stay on track.
ERIC V. HOLTZCLAW is a serial entrepreneur who has founded multiple startup companies, including one of the first profitable Internet enterprises. His last company appeared on the Inc. 5000 list three years in a row. Eric advises clients on the “whys” of business – why customers buy, why teams work and the all-important “entrepreneurial why”. He is the author of Laddering and his weekly radio show, The 'Better You' Project, shines a spotlight on entrepreneurs' individual business journeys and successes. Learn more about Eric at www.ladderingworks.com or e-mail firstname.lastname@example.org. @eholtzclaw