Transparency and open communication win the day for small businesses

There are a lot benefits for small business owners in being transparent and open with customers and employees, even with the most cherished information. It will win you trust and many other benefits. Nuthawut Somsuk / iStock / Getty Images Plus

I love small business. After years in the corporate world, responding to shareholders and managing to stock price, I am so happy to be working with small, privately held companies in my consulting practice.

Small business has heart. Small business answers to customers instead of shareholders, and it has a lot less regulation.

Small business is hard, but it also has all the opportunity.

Small business also has a lot of emotion. Owners and managers often have a lot on the line, including their own money, and sometimes it’s tough to run a company with an objective point of view.

As a consultant, I walk a fine line between pushing hard on data-driven recommendations and allowing space for my clients to make some emotional decisions. Not everything has to make sense, and it’s not always about the bottom line. However, one strategy I try not to back down on is transparency.

I often work with business owners and managers that have a "cards to the vest” approach when communicating with customers and employees. I’ve never seen an upside to this. On the contrary, companies that communicate openly with stakeholders typically have bigger gains than those that don’t.

The Concerns

Most owners and managers I work with are uncomfortable sharing financial data. They don’t want customers and employees to know how much revenue is coming in and how much profit is left at the end of the year.

A small business may have a few reasons to hold back on total revenue when pursuing opportunities with larger companies. You don’t want prospective customers to shy away because of your size when you have plans to grow. However, if you have appropriate talking points in place that speak to vision and long-term goals, you can avoid that pitfall.

The same concern is typical for profits. Small business owners and managers don’t want stakeholders to know how much money they make at the end of the year. Most manufacturing companies (at least in my experience) aren’t making outrageous profits that far outpace the industry standard. Running a 10% to 15% profit margin is acceptable and a sign of a healthy business. Your employees and customers should want you to stay in business, and making healthy profits is how that’s done.

The Benefits

There are many benefits to maintaining open and transparent communication, but the biggest one is building trust.

After 20 years of working for other people, I was thrilled to finally have my own business. I have always been a hard worker and very committed to my employers, so I never liked the feeling that there was more information than was being shared with me.

Frankly, it’s inefficient. I look back at times when I was distracted or unproductive because I was focused on what information was being kept from me.

Often when I engage with front-line employees in my clients’ businesses, they express a desire to be more in the loop. Owners assume employees care about pay, benefits, and not much else. That’s a mistake. Sharing information about a company’s inner workings makes employees feel like trusted and critical parts of the team.

The same goes for customers. If you want to build trust with a customer quickly, share your financial information. At this point in my career, as a salesperson and business owner, I hide nothing. What have I got to lose? I am confident in the products and services we offer, and I’m happy to share our goals for revenue, margin, profit, and really anything else.

Transparency also makes contract negotiation easier. Small business owners often take offense when large OEMs put contracts in front of them that demand insight into profit margin and cost reduction goals. My philosophy is, share all information and say no to contract terms that don’t fit. So far, I haven’t lost a deal because we couldn’t sign a contract. If you have good quality and lead times, they will place an order.

The Gold Standard

I’d love to take all the credit for this insight, but like most everything else I write about in this column, I learned it from someone else. One of my current clients is a true master of total transparency and communication.

Here’s the story: He was part of a private equity firm that was purchasing a very large company out of bankruptcy. The other investors didn’t have interest in the day-to-day or the immense amount of work it would take for a turnaround, but he dug in and went to work as the CEO—for free.

It was tough, and I was along for the ride as the sole sales resource. He pulled off a complete turnaround, but it was high stress—for the business, the bank, the customers, and the employees.

However, every step of the way, this man shared strategic plans and financial details down to the penny with any potential stakeholder who had questions. I’ve never seen an open communication style like his, and I was impressed. I took note and implemented the same practice in the company I own with my husband. We’re small but growing rapidly. Our employees have all the information we do, and so do our customers.

Has this benefited us? So far, so good.