Why You Should Be Transparent With Your Employees
How much should we tell our employees about the business's finances? For small and midsize business owners, there's often a lot of anxiety about sharing too much information. For employees, there's a strong desire to understand the business and its prospects for the future. If you run a privately held company, balancing this is tough. Here are some general guidelines:
- Don't give information without education. Any financial reports you decide to share, whether they're summaries or complete traditional reports, such as your balance sheet, P/L, and budget, should always be accompanied with a thorough education as to how the employee can read the data. It's possible that your employees don't have the background or training to fully understand these documents, so passing them on without education can be little more than distracting.
- What does it mean to them? When looking at the information that you provide, there needs to be a clear summary telling the employees what it means to them. They will likely have lots of relevant questions:
- Is our company getting better or worse? More stable or vulnerable?
- Is my job at risk?
- What are we investing in to make us more successful in the future?
Employees look for context and relevance to the numbers.
- What can I do? Along with providing context for the numbers themselves, it's also important to provide a road map for what you're doing as a company with the information and what you're asking of employees. The ask during positive periods is simple: Keep doing your great work! The ask during negative periods may be around cost cutting, trimming waste, or helping to sell more. Be specific. Employees who believe in your company and its leaders want to know how they can contribute to its growing success or help in overcoming its current rough moment.
What to tell them
Every owner has a right to his or her own level of comfort in your transparency. I will also tell you that the companies that are attracting the best talent are moving towards greater transparency because smart employees want to know what's going on in their businesses. Here are some items you should consider when presenting and discussing the company's finances with your employees:
- State of the industry--A regular discussion of the industry and how it's performing provides good context for the employees as to how the company's' numbers should be considered. Even though they hear economic indicators in the news, what these mean to your industry and their jobs is much more relevant to them. By providing them this overview, your numbers have a frame in which to fit.
- What we do with profits--Somewhere in the media a misconception has been created about profits, that in some way they are bad or that there is a level that is too high. Part of this misconception comes from a lack of understanding of what owners do with the profits. Giving your employees some perspective about what's being reinvested, what's sustaining operations, what's retiring debt, and what's being distributed to shareholders in general terms provides them a clearer and probably very favorable picture.
- What are we investing in--If you tell employees "One out of every four dollars of profit last year was reinvested in equipment, plant, and infrastructure," they will understand that the investment was needed to keep the business going and growing. Amounts aren't as important as context and ratios to demonstrate where the money is going.
- Your relative financial strength--Everyone wants to know where their company fits compared to other companies. They could be companies of similar size, companies in the same industry or region, or even competitors--you choose. It's important to give a sense of performance in context.
- How the company is performing against its budgets and forecasts--Decisions midyear are often made with an eye towards these performance indicators. Providing milestones and measures against those milestones helps.
The days when employees were willing to extend blind trust on financial matters to the owners of the business have passed. People are concerned about the viability of their company, their own jobs, and whether they've bet on the right horse. People will stick with you through rough times if they know what's going on and see a path to success. You do nobody a favor by holding onto the information, because the speculation will always be there, and without data, it will likely be negative.