INSTANT MBA: Successful Small Business CEO Explains Why She Uses Open Book Finance

Instant MBA

June 17, 2014

When Sherry Stewart Deutschmann was vice president of sales at a bill printing and mailing company, she noticed that employees seemed to be making every mistake possible, she told The New York Times.

The underlying cause: they simply didn't care about their work, she said.

Deutschmann became convinced she could build a better company with a stronger culture and more motivated employees — so in 2002, she quit her job, cashed out her 401k, sold almost all of her possessions, and started her own printing and mailing company, LetterLogic. Last year the Nashville-based company brought in $30 million in revenue, and has no debt.

To get her 53 employees involved in their work, Deutschmann evenly splits 10% of monthly profits and employs open book financing.

On the first Wednesday of every month, she closes the LetterLogic factory for an hour or two and goes over the previous month's financials for every department, over a catered lunch. The only data not shared are individual salaries.

The New York Times asked her if she sees any drawback to sharing nearly everything about the bottom line:

I can't really see a con. The pros are people are shocked by how much things cost. We use a million sheets and envelopes a day, all sustainably sourced. It's easy in this environment to throw away or waste paper. But they see that each sheet of paper costs 2 cents and envelopes are a penny and a half, and they know that at the end of the day our profit is about a penny and a half per mailing — so throwing something away is throwing away the profit.

Deutschmann believes that because she informs each employee about the nitty-gritty, they avoid making the egregious mistakes that the employees at her former company made every day. "[O]ur incident rate is incredibly low relative to our industry," she told The New York Times.

Ari Weinzweig, co-founder of gourmet food collective Zingerman's in Ann Arbor, Michigan, has used open book finance for the past 20 years, and his businesses are on track to bring $50 million in annual revenue. He agrees with Deutschmann that the unorthodox system creates better employees.

"The more information they have, the better they can make decisions," he tells Business Insider.

Click here to read the full New York Times Q&A.

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