At my first startup, the CEO would run through financials at every other company meeting. She would tell us our revenue, how it was tracking to our monthly and yearly goals. She would remind us of standard expenses and highlight any major one-offs, like a move to a new office space or a big push at SXSW. The company had a profit share, so understanding the financials meant understanding how we could work harder and smarter to put more money in our pockets.
I had never worked anywhere where leadership shared financials like that, and it was exciting. It was easy for me to place my current projects and the revenue they were driving into the big picture. I knew exactly how valuable I was to the company, and I knew exactly how well the company was doing.
A few years later, I worked at a different company, one where leadership never shared financials. The company had a yearly sales goal, but that was it. It felt like my work was disappearing into a black box. Was it moving the needle? Was it making life easier for the sales team? I couldn’t tell.
Transparency is a good thing, and sharing financials with employees is becoming more and more common. In 2012, 24% of private company CFOs surveyed reported that they shared financial information with all or some of their employees. In 2016, 56% of CFOs said they shared financials.
Educating your employees on the financial health of the company helps them understand their contributions to the organization. Good employees are dedicated to the success of the enterprise. They want to know how the company is doing. How can you best let them know?
Present financials in a friendly format
Unless your employees are all accountants, don’t bother sharing your balance sheet and P&L. “You should never give raw financials because they wouldn’t make sense,” Wayne Rivers, president of The Family Business Institute told Inc. in 2011. “It’s just gobbledygook… you should present information in digest or summary format.”
Think big picture. Rivers recommends using charts and graphs whenever possible, and skipping exact digits if they don’t help tell a coherent story. When you share financials, try to connect them to operational goals. Employees should be able to connect income, profits, and costs directly to the business’s long- and short-term plans.
The scary stuff: burn rates and zero cash dates
I once had a boss who tried to drum up enthusiasm for finding qualified leads by telling us when the company would run out of money if we didn’t. I think it was meant to instill urgency in the marketing team; instead it paralyzed us. We couldn’t drop our current projects, we couldn’t magically summon new leads, and there was little we could do with that information. It was a bad day for morale.
On sharing burn rates and zero cash dates, Jason Lemkin says, “I’m on the fence unless you carefully and thoughtfully provide context.” Sharing burn rates can be helpful for cutting costs. If a team sees that their little-used tools are a substantial portion of the company’s burn, they’re more likely to cancel or downsize contracts. Zero cash dates are trickier. “The thing is, companies almost run out of money all the time,” Lemkin writes. “And they run the gas tank down to almost empty. I do think you should share your zero cash date as well as your burn rate. But. Employees get confused. At least, I think make sure you provide context. What the ZCD means.”
When in doubt, put yourself in your employees’ shoes. Will this motivate them? Will it give them insight into how the company is meeting its goals? Or will it spook them?
Set boundaries
Everybody’s got one employee who asks a ton of questions. It’s important to set consistent boundaries around financial information you are and are not willing to share.
If you share the same metrics consistently, you have air cover if somebody starts asking questions that make you uncomfortable: simply point out that this is what you’ve made available historically and it’s all that’s available.
Note that you don’t want to discourage all questions—questions mean your employees are engaged—you just want to give yourself an out for the thornier ones.
Conclusion
Transparency is important. Your employees will likely appreciate having an understanding of the company’s financials, as long as what you give them is actionable and relevant to them.
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