Profit Minded

Making transparency a priority in your business

Transparency, one of the biggest buzzwords in business right now, is about conducting business in an open and forthright way, and it is driven by recent trends in technology, society and financial markets.

The last 15 years have brought scandals, bailouts, accidents and financial crises that have shaken Americans’ trust in businesses. Enron. Adelphia. Lehman Brothers. AIG. Bernie Madoff. The BP oil spill.

But the newest trend in business is transparency, and it’s helping companies rebuild and maintain trust with customers and partners.

Internal transparency to track progress

Some businesses find that increasing financial transparency within the company can improve the bottom line. For example, Eric Holtzclaw, CEO and founder of marketing and product-strategy firm Laddering Works, began sharing specific dollar amounts for budgets to many employees within his organization, even though he was originally reluctant to do so.

“I had to learn through trial and error,” Holtzclaw says in a recent column for Inc. “But now, with more disclosure, I am not the only one who is aware when spending on a line item or project is inappropriate. I also learned that when department heads are aware of what their group's ‘cost’ the company, they are more motivated to keep spending in line.”

In other words, Holtzclaw found that being transparent with employees gave them the necessary tools to stay on track.

External transparency to boost relationships

For most private companies, it’s instinctive to keep financial data – like other sensitive information such as growth plans, employment numbers, etc. – out of the public discourse and only share that information internally.

But sometimes it can be advantageous for a private company to be more forthcoming about financial performance, assuming of course, that the numbers being shared don’t paint the business as financially unstable, according to Sageworks analyst Libby Bierman.

“Providing financial information to a key potential business partner minimizes the risk of having your company as a partner,” Bierman says. “There are fewer ‘unknowns.”

For example, financial transparency can be helpful in negotiations with suppliers. “In cases where suppliers might otherwise require payment terms to be COD [cash on delivery], if you prove that you are a creditworthy company that can be trusted with a line of credit or more favorable payment terms, then you might be able to delay payments to vendors by 30 or 45 days,” Bierman says. “That delay means you get to hold onto cash longer and have more of an opportunity to do something with it in the meantime.”

This kind of trust can be especially helpful to companies that have many suppliers, such as a construction company. In an industry where large outlays of cash can precede payments by weeks or months, it is vital to have the ability to negotiate favorable terms with suppliers.

Being up front with customers

Transparency can also improve how a company interacts with customers, in both the B2C and B2B markets.

“Any disruption in the service, for example if the supplier goes under, could cause serious delays or completely stop the business,” Bierman says. “If the supplier can share financial data with its customers and make them feel confident that it’s a financially stable company, the perceived risk is minimized, which bodes for better relations between the companies.”

Some companies have found that financial transparency with customers about costs and pricing provides strategic and financial advantages. Marketing firm goBRANDgo! posts its cash balances, credit-card debt and other financial information on office walls for all visitors, including customers, to see. It’s part of a companywide focus on transparency with employees and outsiders.

“It allows us to shape a very different conversation with our customers,” says co-owner Brandon Dempsey. “I don’t get pushback on, ‘Oh, can you drop the price?’ or ‘Your competitor has it for this.’ The biggest advantage we’ve found is we no longer have to play that pricing game….because there’s a higher level of trust.”

Businesses are finding that being financially transparent, both internally and externally, builds trust within and outside organizations, and some companies have found financial benefits in their relationships with suppliers, customers and other stakeholders.

Mary Ellen Biery is a research specialist at Sageworks, a financial information company and provider of the Business Credit Report by Sageworks.  She is a veteran financial reporter whose works have appeared in The Wall Street Journal and on Dow Jones Newswires, CNN.com, MarketWatch

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