Open Book Management

As promised, here is a post on Open-Book Management.

I think one of the best ways to avoid conflict between owners and team members is to be open and honest with the team about the state of the business. In my company we share financial results of the business with the team every month.
Educating the team about the financial health of the business is a process. At first the numbers don't mean much to them. But over time you end up with a much more business-savvy group.
The first time we shared financial information we did it through an activity at a staff meeting. Here's what we did:
Divided the group into 4 teams
Each team was given a calculator, pencil and 2 rolls of pennies (100 pennies)
Each team was given a handout of our Profit and Loss Statement, with line items listed but most numbers omitted. For example:

 The teams were told that their 100 pennies represented 100% of our revenue. Then we walked through each line item in the handout and they had to allocate pennies to each line item - each penny representing 1% of sales. For technician pay, for example, a team may have assigned 50 pennies to that category to represent a 50% commission rate. For some line items I gave them the answer (like loan payments for which they would have no clue), for others I just described what goes in that line (like for salon supplies I told them this is your backbar, color, sheets, laundry detergent, etc.). Use whatever line items make sense for your business (I just realized I left out Front Desk Payroll from my example - don't put your front desk payroll in with your techncians). You may need to group some together if they are less than 1%.

When we completed the handout, we asked each team how many pennies they had left. The closest team got prizes. Back then, in our case, the correct answer was about 3 pennies. We converted that 3% to dollars and I explained that for the entire year, our profit was $13,000. We talked about how that level of cash flow did not allow for emergencies and wouldn't allow us to grow.

I think in many salons (or businesses of any kind) there is the assumption that the business is raking in the dough and the greedy owner is keeping it all. As an owner, you know that is rarely the case. This exercise shows the team that you trust them enough to share very confidential information with them and that you trust them to help you make the business succeed. We have shared our numbers with the team for 6 years now and I believe having the team understand the financial side of the business makes us a better business. It has increased trust both ways as well.

One last thing...if you can't do this exercise with your team because you don't know or understand your numbers, you need to start by educating yourself. Talk with your accountant, bookkeeper or tax preparer and see if they can help or recommend someone who can. Put in place a process where you prepare or receive your numbers every month in a timely manner.