By Ari Weinzweig

Open Book Finance is not easy to implement. It takes a lot of effort from upper management to make it work. The leaders must have the willingness to fight through the inevitable resistance to change, and a determination to use a systemic approach to make the structure successful.

Open Book Finance is not a quick fix. At Zingerman’s, it took more than two years of challenging work to get it going effectively. But if it’s in line with your values and you want to get more people involved to produce better results, then Open Book Finance is well worth the effort it will require.

Merely opening the books and showing people your financial statements will not guarantee success. At first, we made the mistake of sharing all our financial information while not teaching people what it meant. Although the staff appreciated the fact that we were willing to show them, simply sharing the financial statements didn’t help a whole lot except for giving people a reason to think we were nice to work for.

Here’s how we do Open Book Finance today, after years of developing and implementing the model.

Three Steps to Great Finance

We work with three steps to great finance, which we have adapted from the Great Game of Business model set forth in the excellent book by Jack Stack and Bo Burlingham.

1. Know and teach the rules of Zingerman’s finance.
2. Keep score.
3. Share the success.

We’ve learned that we absolutely must do all three steps to succeed. Any one or two of the trio are nice and may be helpful, but they don’t create the sort of success we can generate when all three are used in tandem.We started by teaching our staff about financial statements. That was helpful to the people most interested in learning about them. But the system failed to work until we set up effective and regular weekly “huddles where everyone could “keep score (Step 2) and where results were regularly monitored and improved upon.

Financial Reading Required
Does that mean that all the employees read the financial statements?

Yes. We expect them to; it’s part of their job. Everyone who works in our organization—regardless of job title or seniority—is responsible for our success—and that includes the financial performance. In the same way that everyone is responsible for service quality—we all wait on customers after all, not just the “manager of customer service—we’re all accountable for the quality of our financial results, not just the accountants.

The employees read the financial statements all the way down, top to bottom. Let me add, though, that we have come to use what we call a DOR (department operating report) as our most important financial document rather than the profit-and-loss statement. In brief, our DORs:

• Show the most important or key numbers that front-line people need to do a great job. That allows us to focus efforts on the things we need to manage day-to-day. Depreciation, for instance, would be unlikely to show up on a DOR.
• Show numbers from all of our varied financial statements. They may show sales off the profit-and-loss statements, inventory levels that you’d normally find on a balance sheet and forecasted levels of cash on hand that you’d typically see on a cash flow projection.
• Track numbers that are non-financial in origin. We measure food quality and service quality (also bottom line issues) on our DORs.
• Show key numbers for ongoing games—whatever bonus plans we have running will be posted on the DOR.
• Focus more on forecasting than on past results.

Focus on Forecasting
In brief, we use an “80/20 rule.” Eighty percent of our time is spent talking about forecasting and planning for the future while only 20 percent reports on what has already happened. This is a major shift in model, because most financial statement work is focused only on what’s already happened.

But by the time these numbers are reported at a meeting, they’re close to ancient history. Managing the business only from the financial statements is akin to driving only using the rearview mirror. You can do it, but it’s a lot easier to look through the windshield at where you’re going, use all the gauges and side mirrors, etc. We focus on forecasting the future, and using the past performance primarily only as it impacts our path in the days, weeks and months to come.

The Role of Accountants
How do the accountants fit into all this? In the old finance model, accountants are charged with making the term “controllers a reality. They guard the numbers and ensure accuracy. Others in the organization are allowed “in only as needed. Accountants work closely with government regulations and tax planners to make sure everything is properly in compliance. Top-level owners and managers are also involved because they’re supposed to deliver the results so that when the accountants compile all the numbers, the results are as good in performance as they are accurate. Everyone else in the organization is basically just supposed to “do their work.”

In our version of the Open Book model, the idea is very much the opposite—we want to get as many people involved and share as much financial information as we can. We focus first on numbers that are most meaningful and needed by operational staff (not the ones accountants like to look at), including many that don’t show up on traditional financial statements. In this model, accountants are a resource-—teachers and guides for less experienced staff who are in the process of becoming good business people. And the accountants translate all this back into legal and ethically sound financial statements.

The best analogy might be the difference between great food and effective sign copy to sell it, and the ingredients list and nutritional information the FDA requires. Traditional financial statements are akin to the ingredient list and nutritional info. There’s a tiny minority who like to read them. And while they’re (hopefully) always accurate and sometimes even helpful, they’re hardly engaging. And they often fail to tell people what they most need to know. They’re not about greatness—they’re about compliance. Imagine what your merchandising would be like if all you did was blow up the ingredients list and the nutritional information and post it with a price.

We start with the product we want to sell and then write engaging, exciting copy that conveys to customers how excited we feel about it and how it’s going to improve the quality of their eating. Basically that’s our approach to finance. Our job is to design something “flavorful,” something people (in this case, the staff) want to buy, something they’re drawn to and something that they believe is going to make their life better.

Finance and the Competition
People often ask if I am worried about the competition learning about our finances.

I don’t worry about this issue at all. What would they do with the information? The food business is a very hard way to make a living. We don’t have any “secret weapons in our financial statements that differentiate us in the market or improve our service or food. And if some other shop in town knew what our labor costs were, what would they do with the information?

I’m also not worried about what the employees will think when they see the numbers. My sole concern is that their short-term stress might go up when they see how hard it is to operate profitably in the food business. When staff members get their first look at the financials, their shock is never about how wealthy we are (because we aren’t) but by how hard it is to make a financial success happen.

A Financial Secret
The only financial information we do not share is salaries. And we’ve only held off on those out of respect for people’s privacy. The good news/bad news of successful work with Open Book Finance is that any of the staff who “get” the finance and know how to read financial reports can probably figure out what people make. But even when they do, I’m confident that the salaries are smaller than what people thought they were. And if we can’t justify the salary we’re paying to someone, then maybe we shouldn’t be paying that salary in the first place.

When Open Book Finance works, we accomplish all the good things I mentioned. We live our values more effectively. Everyone in the organization makes better decisions. We get higher levels of staff buy in and commitment. We achieve better results and everyone starts to learn how to think and act like an owner instead of an unempowered employee.