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Thoughts on Sharing Financial Information - Small Business

I am in talks to share financial information with our managers, however the owner/CEO is hesitant as he is worried that the managers will think all the profits are going directly into his pocket, which is hardly the case. I think being more transparent with individuals that drive the business is very beneficial and will help them in their operational decisions. This is the first time financial information will be shared with these people. Anyone have experience doing this, and if so what were some of the ways this was rolled out to manage these types of views?

Answers

Timothy Ogden
Title: President/CFO
Company: Joseph Elon, LLC
(President/CFO, Joseph Elon, LLC) |

You're always going to run the risk of someone feeling they're being shafted because the owner of the business is taking the gold mine. Guess what? Even if there IS a big pot of gold in the owner's office...so be it.

The truth is, the title of manager doesn't really work for most people, despite the fact it's handed out rather flippantly <--in general, maybe not in this case. I own a small business and I have salespeople out there. They're usually the worst when it comes to this topic! (aye aye aye)

In reality, most 'managers' haven't a clue what it actually costs to OWN AND RUN a business. We small business owners put our livelihoods on the lines every day we swing open the doors. There is no way to completely avoid the phenomenon (and that's precisely what it is--nothing more, nothing less) that comes from what you've referred to in your question. Your concerns are definitely valid (at least from where I'm sitting).

Take a small risk and educate your managers in such a way that you're able to gently roll out pieces of information that ultimately become a big picture. For example--> The most effective way I've been able to manage this (and educate folks without inundating them) is to treat and present the positions of salespeople (and divisional managers when it applies) as the profit centers they in fact are. Many businesses fail to see this and often become failures--lost in their own muddled big picture.

I would make an educated assumption that these managers share some kind of performance-driven financial incentive that is tied to the growth, well-being and perpetuity of the company...? If that is in fact the case, you'll be best-served to include future projections and show them precisely how their performance (present and future) affects the company and their personal income. <--They matter and their individual performance does have a measurable impact.

Validate them, qualify them, quantify them and educate them in your enterprise.

I hope this helps--please don't hesitate to drill down for details with me!

Gerry Anderson
Title: President and Founder
Company: Logicon Solutions
LinkedIn Profile
(President and Founder, Logicon Solutions) |

There are a number of ways to help educate people on the business model without sharing with them the 'profit details'. I would recommend sharing with them the business model and share with them that if they hit certain key metrics, they get cash payments within x amount of days. Unless you have a very rock solid culture and everyone is 'vested', I would recommend not sharing the financial statements. Due to today's culture, I would recommend NOT to share the financials unless they are shareholders.

Contact me and I can show you the numerous other ways through analytics and decision support that you can achieve your goal of being more transparent with individuals that drive the business to improve their operational decisions. Financials are not the only way in today's data driven world.

HOWARD SCHWEDEL
Title: Executive & Business Coach, Career Trans..
Company: Howard B. Schwedel, MBA / Schwedel Busin..
(Executive & Business Coach, Career Transition, Franchise Selection, Howard B. Schwedel, MBA / Schwedel Business Svc.) |

make what you share meaningful, but non-threating to the owner. Sometimes this means sharing the financial information in terms of graphs of percentages that aren't too detailed. Another approach is to bring the focus down to what each manager controls and then show them how this aligns with the larger overall picture.

Topic Expert
Karoline Mello
Title: Director, FP&A
Company: Apollo Group
(Director, FP&A, Apollo Group) |

Yes, there will be some staff that see the profits and wonder why they didn’t get a bigger raise. I think the key is the context. If you show revenue and expense and profit for the quarter there isn’t a context. I show current forecast compared to the budget, and current year forecast compared to prior years. The context being that, yes we may be on track to have a positive net income of $2M, however we projected $2.5 and last year made $3 – so we are in a down turn. Or – our sales are 120% of projected revenue and thank everyone for their contributions. Performance measures for all of our managers is in some part tied to revenue or profit, even IT and HR which impact it less but makes them all pull for the company to succeed by their indirect impact. Also – you can add that the health of the organization creates the jobs they have, and ensures it will be around for a long and viable future.

Amanda Montecinos
Title: Administrator
Company: Precision Medical Urgent Care and Family..
(Administrator, Precision Medical Urgent Care and Family Practice) |

People will respond positively if they have a stake in the business either by ownership or loyalty to it. Employees who love their work-place will want it to succeed. The environment you create as an owner of the business is therefore detrimental. Create an environment of excellence and innovation by hiring the right people (disciplined, skilled, smart, honest and nice individuals). Then take care of them. Pay them what they deserve and make sure they have all the tools necessary to do their jobs efficiently, know their families, what concerns them, what career path excites them. Have their backs!! Most employees know or assume that you will take the bigger piece of the cake. If they like you and think you are a fair and not a greedy individual, they won't mind it as much. However, it always pays to share the wealth with them. Give them financial information and link some of their salary to the company's financial performance. Love your company not for the money it puts in your pocket but for the difference it makes in people's lives... and in making the world a better place.

Topic Expert
Lee Andrews
Title: P/T CFO, Business Consultant
Company: Pacific Bag, Inc./Other Clients
(P/T CFO, Business Consultant, Pacific Bag, Inc./Other Clients) |

My experience, a former private company, single owner, client case: I/we implemented a monthly all-employee meeting and showed a simple one page slide which charts three measures of actual YTD numbers against the YTD goal for that month from the annual business plan. We did NOT hand out hard copies -- slide show only. We show revenues, gross margin %, and EBITDA. For each month where the actual YTD beats YTD goal, each employee below manager level gets $50 in their next paycheck for each measure. i.e. up to $150 a month, or $1,800 per year. Our initial concern was not only sharing such private information with employees, but also would someone take the private info and tell/sell a competitor about our size and profitability and margins. In the end, after emphasizing it was instant dismissal if we ever found out someone did that, we went ahead and shared. It has been a very successful goal orientating program, brings a joint focus on what is important financially, and is a chance to bring everyone together for other company updates. We were able to discuss the impact of, say, a special price discount on the GM%, or the impact of a messed up production run. However, most other financial information, such where the EBITDA money goes, etc. is very closely guarded. Most employees (who barely understand what EBITDA is) might assume the boss/owner and execs get a chunk of the profits, but most have no idea how or if company profits are reinvested, the level of debt principal payments, increasing investment in inventory, etc. There are many ways to dispel the idea that the boss collects it all in his pocket.

Jim Torpey
Title: VP of Sales & Biz Dev.
Company: InsynQ
(VP of Sales & Biz Dev., InsynQ) |

Since the future of business practices are leaning towards more transparency, I would consider giving people more info than they need. At the same time, don't give them more than you should...i.e.- go ahead and share info that isn't detrimental. Financial information is always going to be a touchy issue, especially when it comes to different departments/people having varying budgets. People might feel like they aren't getting what they should, be it money, trust or respect. But as a long term strategy a successful business would want their employees/staff to feel like they are included in everything that is going on. So along the same line of thought that Mr. Schwedel had…share, don’t give away the specifics or details if there is a potential it could be harmful to the business or CEO.

Rachel Miller
Title: Director of Finance
Company: Larimer Humane Society
(Director of Finance, Larimer Humane Society) |

We were in a similar situation toward the end of 2011 - we decided to start presenting financials on a monthly basis for the first time as a small, private company. The presentation evolved quite a bit over the subsequent years and is now a basic key metrics slide for all employees and more detailed information for managers, but even managers only see % to revenue and budget-to-actual variances. We constantly reevaluate the relevance of our presentation and make changes accordingly, but I can say that our employees like to see the key metrics because their bonuses are directly tied to them - presenting numbers for its own sake might not add value for an average employee with no tie-in to their paycheck or performance eval. Managers have more responsibility to "do" something with the numbers, and I think they appreciate being entrusted with more detail. Our company is a family-owned business, so I understand your concern about how the owner will be perceived, but to echo what Timothy said, that is part of working for a private business. Make sure that any numbers your present correlate to action items for your managers that will be tied to their performance, and I think you will be pleased with the results! Good luck!

Anonymous
(Director of Finance and Accounting) |

Appreciate all the comments and ideas!

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