Out In The Open

Nick Sarillo, owner of Nick’s Pizza and Pub, takes home $120,000 a year, and he doesn’t care who knows it, including –– and perhaps most importantly –– the 200 full and part-time staffers who work for him.

Sarillo, who operates pizzerias in Elgin and Crystal Lake, Illinois, has an open books policy, which means he makes available to his employees every detail of how his business operates financially, from daily sales information to how much paper napkins cost to how much he and his managers earn and how much it costs to rent space.

Ian’s Pizza, which has four locations in Madison and Milwaukee in Wisconsin and Chicago, also follows an open books policy.

“We find it breeds a culture where employees take a bigger interest in the company and have a bigger interest in the success of the company,” says Nick Martin, general manager at one of Ian’s two locations in Madison, Wisconsin.

Since establishing open books in 2002, Sarillo says his business has seen profitability increase from an average of between 8 and 9 percent to between 12 and 16 percent. At its highest, pre-recession point, he says profitability was 18 percent.

“The average net profitability in the restaurant industry is three percent. With open books, profitability goes through the roof,” says Rudy Miick, president of Miick and Associates in Boulder, Colorado, which worked with Nick’s to put open books in place.

The policy allows employees to see and understand financial information, to take a role in trying to push those numbers in a positive direction, and to have a share in profits or in some other way reap a reward from the company’s success, such as with a party or a salary increase, says Miick.

The main cost centers around which information is shared, and which have the most potential for being moved in either a negative or positive direction, include food, beverage and labor costs. Other information on money going out also is shared, but is not as variable, like the cost of renting a business space, Sarillo says.

When instituting the policy, Sarillo also established a daily cost system that provides up-to-the-minute numbers and started holding weekly meetings for staff that he calls huddles, at which they review financial information and set goals.

Each employee takes responsibility for a line item such as lunch sales or average amount of check per guest. The employee reports previous data on that line item, such as how the restaurant fared the week, month or year before on that day of the week; looks at what factors might affect that number, such as an impending snowstorm or a weekend homecoming game; and forecasts a goal.

“We have everyone from 16 year olds to 40 year olds involved in our numbers,” Sarillo says. “It energizes the team. It gives them something where they feel like they have a real impact on the business.”

Sarillo says he has white boards at the meetings on which important financial information is outlined. “If there’s any area that needs attention, we’ll put it on the board,” he says.

Knowing how much the owner earns also dispels any misconceptions employees may have that a business just opens its doors and the owner rakes in the dough.

“When the team comes in and sees that a pizzeria is really busy, they think those pizzas, at $10 a piece, is pure profit,” says Miick. “This takes away any sort of misunderstanding from the team and we get to deal with real, hard data.”

It also helps staff better understand why when a shift is slow, the restaurant may need to send some employees home.

“It energizes our people to be the best crew and do the highest number of sales they can,” says Martin. “They’ll say, ‘Look at all the sales we did with just this few number of people.’ And any employee can punch in their employee code and see what our labor costs are. They understand why they’re being cut on a slow night.”

Both Martin and Sarillo agree that the most challenging aspect of the open books policy is putting in the time and effort to educate staff in what those financial numbers mean.

“There is a big teaching aspect to open books. Employees get a crash course in bookkeeping and finance,” says Martin. “We hire a lot of college students, and for a lot of them it’s their first real job. It’s great for them to see how a real business operates.”

“It’s a matter of getting in the habit of having those weekly meetings,” Sarillo adds. “The hard part is getting started and you have to be disciplined to not give up.”

Armed with knowledge, employees are more likely to make better financial decisions even in small details, advocates say. “They aren’t going to grab a stack of paper napkins when they just need two,” Miick says.

Another challenge of the policy can be assembling a management team that is willing to share information. “You need to have managers who aren’t afraid to be open and transparent,” Sarillo says.

Employees at Nick’s are rewarded with the potential for profit sharing that can range from as little as $2 to up to about $120. “Every four weeks there’s a potential for a bonus,” says Sarillo.

Those amounts are paid based on how many hours an employee works and other factors in their control such as taking additional leadership training classes offered by the pizzeria or getting a certification.

“A server who wants a pay raise goes after a certification to be a bartender and that makes them more valuable to the restaurant,” says Miick.

Sarillo adds that even during trying economic times, he has found open books to be a benefit. “When things are down it’s almost like you don’t want to tell anyone,” he says. “But having more heads working on a problem are better than one. The team rallies together.”

For people used to playing their financial numbers –– representing either increased or decreased performance –– close to the vest, Miick says embracing the concepts behind open books may be hard, but worth it. He says: “It’s counter-intuitive, but it works.”

Annemarie Mannion is a freelance writer living in the Chicago area. She specializes in business and health stories.

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