10 Rules to Open Book Management

Most business owners would love to have their employees think and act like a business owner.   However, exactly what behavior are they looking for?  As owner of Focus CPA, I would like each employee to come to work with high positive energy, ready to deliver the best results to help the business grow and produce a profit.  To do that the following items are essential;

  • Everyone has a clear perspective on how the company provides value to customers.
  • They know specifically how they contribute to that value.
  • We can count on them to do what they say they will do and act with integrity. They are honest, trustworthy and consistently reliable.  They live the same values that the business lives.
  • They are enthusiastic and are not just trading time or talent for compensation.
  • They develop trusting relationships with others – employees, customers and vendors.
  • They take responsibility for results.

If this is what we want what can a business owner do to inspire those behaviors?  

To start I looked for examples of businesses that have made progress in this area.   One example is Zingerman’s.  In 1992, they started as a deli in Ann Arbor, MI.  As of 2012, they were producing over $40 million in sales.  Based on an article written by Ari Weinzweig, co-founder of Zingerman’s, they do this with “open-book” management.  Everyone sees the numbers and everyone has a major role in delivering positive financial results.  The business starts with three basic principles (1) know and teach the rules, (2) keep score and (3) share the success.

Let’s start with their 10 rules.

1. BEGIN WITH A PLAN.  Resources are limited. It is imperative that everyone knows the vision and the plan.

2. PROFIT IS VITAL.  All know and understand that SALES-EXPENSES=PROFIT.  Profit is essential for the financial health of the business.  Profit is used for many things; for growth to purchase additional equipment, buildings, loan payments, federal and state income taxes, return on owner’s investment and savings for more opportunities.

3. CASH IS KING.  Everyone understands that profit is different from cash flow.  RECEIPTS – WITHDRAWALS = NET CASH FLOW.  Receipts are more than just sales and withdrawals are more than just expenses.

4. BUILDING VALUE IS ESSENTIAL.  A healthy business has a strong business value.  Keeping profits in the business strengthen the value.  Making long-term decisions instead of just short term can make a difference in the financial health of the business.

5. MEASUREMENTS.  They use DOR others call it a dashboard, scoreboard, or key productivity indicators.  Identify, create expectations and measure 5 to 25 behaviors, non-financial items, which will lead to success.  From these items, all can determine whether they are doing a good job or not.  They live the philosophy “you get what you inspect – not expect”.

6. ITS GOTTA TIE OUT.  We all work together.  One department affects the other.  Sales influence staffing, inventory impacts sales, cash flow impacts growth and so on.

7. A DOLLAR TODAY IS WORTH MORE THAN A DOLLAR TOMORROW.  Understanding the impact of receivables, inventory and borrowing money.

8. 80/20 PRINCIPLE.  When reviewing financial information they focus 80% of their time on future financial information and 20% on the past.  For many businesses, 80% of profit comes from 20% of their business.  The point is to keep focus on what you can change.

9. SPEAK THE SAME LANGUAGE.  This is where the accountants talk so everyone can understand them.  Define gross margin, net profit, sale, receipts, cost of goods sold and overhead for starters.

10. SUCCESS STARTS HERE.  Everyone takes responsibility.

These 10 rules have worked at Zingerman’s.  By keeping score and sharing their success, they continue the success cycle.  It helps to start with great employees, however you can create an environment to develop, create and keep great employees.

To start I recommend that you create your vision and then using the above 10 rules put it into action.   It does not have to be perfect – just start with a plan.   For ideas go to Ari Weinzweig book ”Building a Great Business”  where he provides “a recipe for writing a vision of greatness” see page 151.  He also shares Zingerman’s vision for 2009 and 2020, page 305, right after their mission statement.

Wouldn’t it be great if everyone that worked in business thought and acted like a business owner?  

We can provide financial insight to help you clarify your vision.  We have started a dictionary to clarify accounting terms into everyday layman language.  We do revise financial statement reports to make better business decisions and can assist in designing specific measurements.  All are customized for your culture, business and industry.  Just contact Mary at 920-351-4842 or mary@focus-cpa.com to set up a “discovery meeting”.

Mary Guldan-Lindstrom

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