What is financial transparency?
Financial transparency is the practice of sharing financial information with employees. At its full potential, it prompts a transformative shift in culture, equipping employees with the knowledge and tools to participate in company financials and productivity metrics. The open-book management program called The Great Game of Business (GGOB) puts it best: “It’s about responsibility, ownership, results, and growth. All of these things come together to drive the needle forward in your organization.”
For companies looking to become more financially transparent, open-book management is the flagship approach. The goal of open-book management often called open finances or open books is to give employees the knowledge and tools to help them understand how the company is run and what their stake is in financial outcomes. When your employees understand this information, they’re better able to adapt to changes, stay committed to your company’s goals, and take ownership of their work on a daily basis.
It all ties back to living out your company’s core values and connecting employees to your purpose. Top leaders want employees to have a meaningful answer when they are asked, “How’s your company doing?” Open-book management deepens employee engagement by helping them understand how they can impact the company in their individual roles.
Why should I share financial information with employees?
The most successful leaders understand that the environments they create directly influence profitability. A culture defined by accountability, trust, and purposeful growth will have a loyal, engaged workforce and outperform its competitors. That’s why so many leaders have embraced financial transparency to strengthen the culture and improve financial performance.
Within most organizations, only a select few employees deeply understand company finances and understand how those metrics affect outcomes. Being financially transparent turns traditional, blind financials on its head by inviting employees to think like owners and innovate from the bottom up. Open-book management, particularly the GGOB approach, cultivates a culture of individual and collaborative leadership and thwarts the root of organizational gossip — lack of transparency.
All that said, open-book management is a vulnerable endeavor. When you roll out open finances, you become responsible for ensuring employees understand the company balance sheet and income statement, and you’ll be accountable for answering tough questions about how the company spends money. That’s why education is an essential component of financial transparency.
Financial literacy is not only key to the success of any open finances initiative, it’s also a powerful way to increase employee engagement. Financial literacy is an investment in the overall well-being of your employees, demonstrating your commitment to their success and empowering them to act as leaders. When you give employees the tools to understand basic company finances, they’ll be more aligned with company decisions, more proactive about making positive changes, and more bought-in to the overall mission of the company.
Once a company commits to open finances, the results are impressive. Transparent, well-informed communication replaces departmental conflict and gossip. Teams begin to work together to prevent and solve challenges, and leaders begin to emerge in every area of the organization.
How can I teach finances to my employees?
It can feel risky to share the financial side of the business with employees — what if they don’t understand the numbers? What if it distracts them from their day-to-day jobs? Instead, you’ll find that it creates a clear path to building a sustainable business that delivers on your promise to employees. Financial transparency is more than just sharing the numbers — it creates a culture where all employees feel and act like owners and are armed with the information they need to make the best decisions for the business.
Purpose-driven businesses exist to care for employees in the totality of their lives, and financial transparency is a direct investment in the overall well-being of your employees. Because sharing financials requires financial education, you’re equipping employees with valuable new skills that they can put to use in their personal lives and to advance their careers. Best of all, financial education doesn’t require employees to enroll in night school or read confusing textbooks — they’ll increase their financial literacy by learning alongside coworkers and participating in the real-time realities of your company finances.
Financial language is often unfamiliar and confusing, making even the simplest concepts seem complex. The first step to growing a financially literate workforce is making sure you’re all speaking the same language. When you reported on last month’s revenue, did your employees really understand? How about when you mentioned that bonuses are based on your EBITA? Beyond just vocabulary, do your employees have a clear understanding of how their day-to-day work impacts the numbers?
Share this article with your team for a crash course in common financial terms. Through the story of a lemonade stand, your employees will learn about revenue, COGS, gross profit, net profit, gross margin, and the difference between a balance sheet and income statement.