Why Your Startup Should Embrace Accounting Transparency
Accounting transparency is much discussed among entrepreneurs and startup owners, but less frequently put into practice. This approach may be difficult for small business owners uncomfortable with the idea of sharing confidential financial information with anyone beyond his or her leadership team.
But there are compelling reasons to adopt a policy of transparency as you strive to attract investors, draw customers to your site, and hire quality employees.
Sharing information with employees is not only potentially helpful in how they go about their jobs, but also as a symbolic gesture. "You're showing them that you trust and count on them enough to keep them informed about important and sensitive company information," says Annie Pilon at Small Business Trends. "This may motivate them to work even harder toward your company's objectives."
The message you send by taking this action demonstrates your attitude that employees are genuinely valuable to the business, not replaceable cogs in a machine. It also instill confidence in newly hired staff, demonstrating that their decision to work for your company is a good one and that their input will be valued.
Types of Information to Share
Buffer, a social media management site, freely shares information with the public through a site called Baremetrics. According to Buffer co-founder and CEO Joel Gascoigne, the "current numbers and things we share" include:
- Number of registered users
- Number of active users on a monthly basis
- Number of paying customers
- Annual recurring revenue
Michael Wolfe, co-founder of Sagan Systems, encourages a policy of accounting transparency that also includes sharing operation plans, financials, "including funding, cash, revenue, etc.," and deal information, "wins, losses, post-mortems on losses."
What happens if a startup decides not to share information like this? "People don't have the motivation or context to understand 'why' they need to do their jobs," Wolfe says. "They don't see how it all fits together." Complicating matters further, he adds, employees will "just make stuff up, gossip, and speculate, and what they invent is often worse than the reality."
What Not to Share
Sometimes, determining exactly how much information to share depends on specific circumstances and situations. "Transparency works, but that doesn't mean that it has to be used in extremes," says entrepreneur Chris Warden. Generally speaking, he adds, "even the most transparent workforces don't know everything about their workplace, and that's not a bad thing."
Serial entrepreneur Pano Anthos recommends not sharing information "that employees cannot fix, e.g. board troubles, M&A discussions, layoff discussions." Whatever you decide to choose, he adds, be honest about it: "Minimize spin, but at the same time note the glass being half-full, instead of half-empty."
Use Feedback to Strengthen Operations
Being transparent means you invite comments, criticism, and feedback on your business. This may not always seem like a good thing, but taking corrective action based on that feedback may ultimately strengthen business operations.
Dave Nevogt, co-founder of Hubstaff, advocates using feedback loops "to kill mistakes while they're still not threatening, raise the level of awareness about your company, and improve your services." Feedback generates valuable insights into "how others view and use your product or service."
Accounting transparency doesn't mean revealing everything in your books. It means being forthcoming about finances in ways that build trust among employees, investors and customers—trust that typically can't be "bought" in any other way.