Open Books

An counterintuitive business idea

Open Books

Unconventional ideas can work wonders in business.

Oftentimes it’s the unconventional ideas that have the biggest impact. So let’s explore one:

What if you were to share your finances with your entire team?

That's right, open your books to employees.

Opening your books to employees might sound like a crazy idea. It might also be the best thing you do. There’s a strong argument in favor of this approach (and against) so let’s spend some time exploring it to see if it could be the right idea for your business.

The Logic of Open Books

Think about a professional sports team.

Imagine a top-level team where the only person in the club that knew the preferred tactics was the coach. The players don’t know what is meant to be happening and how they are meant to line up and play.

The great players will score goals, but the team won’t perform well. The team needs to be coordinated and aligned on the plan and tactics.

They need to see the scoreboard and the playbook needs to be open.

Hiding the scoreboard (the company’s finances) would be crazy.

The Benefits of Open Books

Anecdotal evidence suggests that businesses who have implemented Profit & Loss training for employees and management can show profit improvements of up to 200%.

I would dearly love to find more data on this, and hear from your experience, but this is the figure I’m working with. It makes sense when you really think about it.

The typical reason for keeping books closed is something like:

  • "If my employees find out how much I'm making, they will demand a raise!"
  • “They will never understand the numbers”
  • ”They'll rip me off!"

However, based on the 200% profit improvement it appears that the opposite is true for companies confident enough to take the time to train their employees and give them the financial training they need to understand your business and their job.

How to Implement Open Books

If you still need to be convinced, try this test: ask your employees what percentage of your revenue they think falls to the bottom line in net profit.

My guess is that most answers will be between 25% and 50%.

This means that if you do not give them the facts, they think you are making up to 50 cents on the dollar in profit. Ludicrous. The best businesses in the world don’t convert 50% of revenue into profit, and your employees are probably confusing gross profit with net profit.

If you do not give them the facts, they cannot be of much help in improving profitability. If you do not give them the facts, you are standing in the way of their professional development and asking them to win the game without a playbook.

Make sure that employees learn what it actually takes to run a successful business. By sharing information on costs and income, they can see how the business works and what it takes to make a profit. Then they can help you.

Sales typically increase because once people learn to read the numbers, they understand that cost-cutting is only half the battle. Hourly employees start coming up with brilliant, insightful ideas of how to build sales and reduce costs. They’ll even start implementing them independently and improving your business for you.

The Takeaway

Knowledge is power. The more your employees know what it takes to win the game, the more valuable they will be as players. They will be more engaged, and on your side.

Start out with my simple test, and go from there.

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