Want to increase transparency and potentially boost profits? If so, you may consider open-book management. So, what is open-book management? Get to know what open-book management includes, the pros and cons of it, and how it works.
Open-book management definition
Open-book management (OBM) is the practice of sharing your business’s financial information with employees. OBM can cover a variety of data on business performance, including business budget and top and bottom line goals. OBM helps:
- Employees make better business decisions
- Create transparency in the workplace
- Your team does their jobs more effectively
- Employees understand how the company is doing as a whole
- Improve your employee-employer relationship
Open-book management can show employees how their role fits into the bigger picture and how their production impacts the business’s finances. And in turn, it can help your company work better as a team.
Although it can be a scary thought to showcase your finances, OBM can also show your team that you trust them with sensitive information.
Overall, OBM involves four best practices:
- Trusting employees with financial information
- Training employees on financial information
- Encouraging employees to use the information to improve profit and efficiency
- Rewarding employees fairly for the business’s success
Benefits of open-book management
There are plenty of perks to open-book management for your business and employees. Here are some pros of open-book management:
- Team communication: Teammates communicate with each other about costs and potential new revenue.
- Transparency: Sharing your financial data shows employees that you trust that they will understand and respect business decisions and handle sensitive information correctly.
- Fresh ideas: Sharing strategy and financials can encourage employees to come up with new ideas that improve profitability.
- Focus: Employees focus more on the success of the business with finances in mind.
- Sense of ownership: A sense of ownership can help improve processes and productivity and increase employee retention.
- Employee retention: Transparency, a sense of ownership, and everything that comes along with OBM can help you retain your employees.
Disadvantages of open-book management
Of course, there are pros and cons to everything in business. Before deciding to implement open-book management, consider these disadvantages:
- Security: Providing sensitive information can open up doors to security and privacy issues. However, you can use a nondisclosure agreement (NDA) to avoid this.
- Fraud schemes: An employee may cook up an employee fraud scheme (eg, manipulating data) if they know your financial information.
- Morale: If employees see the company is struggling financially, they may seek employment elsewhere. Likewise, employees may ask for raises, bonuses, etc. if they see a healthy bottom line.
- Disgruntled workers: If you plan on sharing wage information with OBM, workers may be upset with salary and bonus structures.
Although the cons aren’t 100% avoidable, you can steer clear of them by keeping an eye on your books and finances, choosing not to share certain information (eg, wages), and requiring employees to sign an NDA.
Open-book management examples
Want to see OBM in action? Check out a couple of examples of open-book management at work.
Example 1: Your company posts weekly financial updates and tracks metrics regularly in a spreadsheet for employees to view. In turn, employees can use this information to see how the company is performing and where they need to improve.
Example 2: You create a lunch and learn activity where employees come to learn about reading financial statements and how to use and improve metrics in their roles.
How to implement OBM
Want to get the ball rolling on OBM? If so, follow these five steps:
- Determine what information you want to share
- Educate your team on how to read financial statements and data
- Have employees sign an NDA, if applicable
- Open your books to participating employees
- Hold regular meetings to go over financial information and employee responsibilities
- Keep following through and being transparent with employees
If you plan on using open-book management in your workplace, consider adding details and requirements about it in your employee handbook.
If you’re thinking about open-book management but worry about disorganized books, we’ve got you covered. Patriot’s online accounting software makes open book management easier than ever with accurate and easy-to-read financial reports. And, it’s just a click away. Try it for free today!
This is not intended as legal advice; for more information, please click here.