What Financial Information Should You Share With Employees?
September 14, 2021
As a startup founder, you're tasked with making countless judgment calls that will affect the performance of your business. Some of the questions you encounter will have relatively straightforward answers, like whether to use the single or double entry bookkeeping method.
Others are much less obvious, and the question, "What financial information should you share with employees?" falls firmly in this category.
What financial information should you share with employees?
Of course, there's no one-size-fits-all answer to the question of financial transparency and open book management, and what you ultimately choose to divulge will depend on a variety of factors, including the size of your business, the industry you occupy, and the culture you want to cultivate. The experts we spoke to seem to agree on one thing, though: In general—and especially for small and private companies—the more transparent you are with your employees about your company's financials, the better.
"The more information you share, the better," says Emilie Pires, Vice President of Communications at AI-powered startup finance firm Zeni.
Lee Grant, CEO of integrated risk, security, and privacy software company Wrangu, echoes the sentiment, saying, "Employees who are well-informed, in my opinion, are more useful to their employers."
Below, we'll shed a little more light on the benefits that lead Grant and Pires to their open-book stance, as well as potential risks that may accompany sharing financial information with employees.
3 Benefits Of Sharing Financial Information With Employees
The advantages of greater financial transparency with employees are threefold:
1.It creates trust—When you're open with your employees and provide regular updates about your company's finances, they're more likely to trust you and more likely to feel like you trust them. In turn, Pires says, "Employees who trust you and feel that you trust them will take greater ownership of the company and work harder to make it succeed."
2.It promotes understanding—"When employees have access to information about your company's finances, they'll have a greater understanding of both their role within the business and the reasons for your decisions," says Pires.
3. It empowers employees to make better decisions—Transparency can foster employee ownership, leading to better decision making. If your employees know cash is tight, they'll be more likely to submit spending proposals geared toward increasing revenue. On the other hand, Grant says, "When the company is performing well, expenditure plans can focus on overcoming higher demand hurdles and other pertinent issues."
3 Potential Risks Of Sharing Financial Information With Employees
None of this is to say that there aren't pitfalls associated with openly discussing company finances in the workplace. The main three concerns founders and executives have are usually:
1. Discontent—One of the biggest concerns many owners have about financial transparency with employees is that openly sharing positive financial developments with them will lead to dissatisfaction with the growth of their own salaries and may encourage more frivolous expenses.
2. Discouragement—Conversely, some owners voice concern that allowing employees to see financial results that paint a less cheery picture might actually discourage them from working to improve the company's position. "If the company isn't doing great, if they see that there's, say, three more months left of cash," Pires says, "they might start looking for other opportunities."
3. Leaks—The other concern about transparency often heard from owners is the possibility of employees leaking sensitive information to external parties, such as competitors. For instance, Pires says, "If a company's growing rapidly, if they're moving toward an IPO, there could be concerns about what the future value of some information could be to an outsider."
How To Share Information With Employees
Both Pires and Grant agree that, while financial transparency with employees is ultimately a net positive for your company, you'll need to ensure you're not only sharing the right information but also giving employees the tools to understand it—for instance, explaining the importance of financial statements to employees, or breaking down the basics of a balance sheet. "Employees are unlikely to be interested in every single detail," Grant says, "and they surely aren't interested in sifting through a packed financial spreadsheet."
For Pires, that's much of what Zeni hopes to offer customers: "One of the features of our dashboard is that you can invite employees or others within your organization at various levels and degrees of access," she says, explaining that Zeni "has views within the dashboard that provide high-level financial data and insights without granular details."
Zeni makes your finances make sense.
Zeni is the first AI-powered finance concierge for startups. We combine cutting-edge software with an experienced team of finance experts to offer bookkeeping, accounting, and CFO services to our customers.
The Zeni Dashboard allows you to view real-time, highly accurate financial data and insights 24/7, while controlling the level of access you authorize to your team members.
from our blog - the balance sheet
Zeni is a new age, full-service finance firm, built from the ground up using AI & ML, for startups and small businesses. Zeni’s AI and Finance Experts collaborate together to deliver 100% accurate accounting