Responsible financial management goes beyond just tracking the income and expenditure of a company to report on financial stability. It is a process that is could and should be used to integrate your financial planning with the overall planning and execution of the business.
The EOS® model of managing business operations provides a set of tools that can greatly improve your overall results by keeping your leadership team on track, structured, and accountable to objectives. Correct application of the EOS® system can improve companies performance 20-50%. But imagine if you supercharge this by aligning your financial management with the EOS® style of managing your business! In this blog, we will discuss how you can do just that by aligning your financial plan with an EOS-inspired approach.
But first: Full disclosure. I am not an EOS® Implementer, however I am a passionate supporter of the EOS® methodology. Having worked with many organizations that have implemented EOS®, I have created financial management practices that line up with this approach. I would encourage all readers to have EOS® properly implemented either through an Implementer or through Self Implementation via Basecamp Training and be very familiar with the Traction Library so the following concepts make sense.
What is the EOS® Framework?
The Entrepreneurial Operating System (EOS®) is a comprehensive business management system designed to help entrepreneurs and leadership teams clarify their vision, gain traction, and foster healthy organizational growth. EOS® consists of six key components: Vision, Data, Process, Traction, Issues, and People. Through these components, business can understand what they are pursuing, how their teams are working together, and what success looks like.
Although EOS® can be used in any area of managing a business, it can also be a great way to increase the financial results. Now, let us see how each of the EOS elements can help in improving the financial management.
1. Align Financial Goals with the Vision Component
The Vision component of EOS® is all about defining where your business is headed and aligning your team around that common purpose. By developing a clear vision, your business can ensure that financial goals are aligned with long-term objectives.
Example: If your 10-year vision involves expanding into new markets or increasing profitability by a certain percentage, your financial strategy must support those goals. This means setting financial milestones for revenue growth, profit margins, and investments that will help you achieve your broader vision.
Actionable Steps:
- Create a Vision/Traction Organizer (V/TO) to map out your 10-year vision, 3-year picture, and 1-year plan. This will help you to plan your financial management in a way that will support your long terms objectives.
– Share your financial objectives with the leadership team on a frequent basis to make sure everyone is on the same page in regard to the company’s financial strategy. - Break down financial goals into Rocks, which are 90-day priorities that help drive progress toward the larger vision. This includes cashflow and profitability targets, expense tracking etc.
The Data component in EOS® is focused on using measurable results to drive decision-making. A data-driven approach is essential for improving financial performance because it ensures that your financial strategy is grounded in facts, not guesswork.
2. Drive Financial Performance with Data
By implementing a weekly Scorecard, you can track key financial metrics such as cash flow, gross profit margin, revenue growth, and operating expenses. This will help you to understand the financial standing of your business and you can make changes when you want to.
Example: If your Scorecard shows that operating expenses are exceeding revenue, you can take immediate action to reduce costs or increase revenue, preventing financial issues from escalating.
Actionable Steps:
- Identify the most critical financial metrics to track, such as cash reserves, net profit, and accounts receivable turnover.
- Use the EOS® Scorecard to track these metrics weekly, ensuring that you have a real-time understanding of your financial performance.
- Adjust your financial strategy based on Scorecard results. If you find that you have some negative trends, try to correct them as soon as possible with specific financial moves.
3. Improve Cash Flow Management with the Process Component
Processes are essential to running a business efficiently, and they are equally critical for improving financial performance. The Process component of EOS® emphasizes the need to document and refine business processes, ensuring consistency and scalability. When applied to financial operations, clear processes help streamline cash flow management, invoicing, and expense control.
Example: Documenting a standardized process for month-end closing can prevent errors, reduce inefficiencies, and ensure timely financial reporting. Additionally, creating a process for accounts receivable can help you get paid faster and maintain healthy cash flow.
Actionable Steps:
- Document key financial processes, such as invoicing, payroll, budgeting, and expense approval.
- Review these processes regularly to identify areas for improvement, ensuring they remain aligned with your financial goals.
- Assign clear ownership of financial processes to specific team members to ensure accountability and consistency.
4. Gain Traction through Accountability and Execution
The Traction component of EOS® is about execution and accountability. It helps you to make sure that your team is always in line with the financial goals of your company. In terms of financial performance, Traction helps create discipline in executing your financial strategy, ensuring that your team stays focused on the most important priorities.
By holding regular Level 10 Meetings, your leadership team can review financial metrics, discuss any issues that may impact financial performance, and track progress toward financial Rocks. This helps to keep financial goals in focus and makes everyone on the team responsible for their accomplishment.
Example: In a Level 10 Meeting, your team can check if they are likely to achieve their quarterly targets for profit and discuss any problems that
Actionable Steps:
- Set clear financial Rocks for each quarter that align with your long-term financial vision.
- Use Level 10 Meetings to regularly review financial progress and discuss issues impacting financial performance.
Ensure that every member of the team is answerable to some financial duties and financial goals to be achieved.
5. Solve Financial Challenges with the Issues Component
The Issues component of EOS® encourages businesses to identify and solve challenges quickly. In the context of financial performance, this means identifying financial bottlenecks, cash flow issues, or inefficiencies and resolving them before they escalate into bigger problems.
By implementing the Issues List in your financial management process, you can ensure that financial problems are addressed head-on during your Level 10 Meetings. This creates a proactive approach to financial problem-solving and prevents small issues from growing into larger threats.
Example: If your business experiences a sudden drop in sales or an unexpected expense, adding this issue to the Issues List allows the leadership team to quickly discuss and address the problem, preventing it from derailing your financial progress.
Actionable Steps:
- Create an Issues List specifically for financial challenges, updating it regularly based on your Scorecard results and financial reviews.
- Prioritize financial issues based on their impact and address the most pressing concerns during Level 10 Meetings.
Come up with practical recommendations for every financial problem, and then make the team own the recommendations.
- Strengthening Financial Roles through the People Component
The People component of EOS® focuses on getting the right people in the right seats. In the context of financial performance, this means that the right people have to be put in charge of certain financial processes like budgeting and forecasting or cash management.
As a result, your business can use the Accountability Chart to determine who is in charge of what in terms of financial management. This is useful to avoid misunderstanding and to make sure that the financial objectives are implemented properly.
Example: Your CFO or financial controller may be in charge of cash flow and financial statements while department heads may be required to control their expenses.
Actionable Steps:
It is important to develop an Accountability Chart for all the finance related positions and their responsibilities.
- Ensure that financial responsibilities are clearly communicated across the organization.
- Regularly evaluate the performance of financial roles to ensure that the right people are driving financial success.
Long Term Financial Sustainability: The Challenges and the Solutions
When your financial strategy is integrated with the EOS® components, your business will be in a position to develop a well-coordinated approach to the financial performance of the business in the long course of its operation. EOS® helps businesses remain focused on their financial goals, while also providing the tools and processes needed to execute effectively.
When financial performance is closely tied to the broader business vision, companies are better equipped to grow, invest wisely, and navigate economic challenges. Thus, following the EOS® model, companies can work towards their financial sustainability and stick to their financial goals.
The EOS® framework can be a great tool for enhancing financial outcomes and supporting organisations to achieve their financial strategy in a more general business strategy. By focusing on key EOS® components like Vision, Data, Process, Traction, Issues, and People, companies can create a more organized, disciplined, and accountable financial strategy. In the end, an EOS®-inspired approach helps companies keep their financial goals in sight and achieve profitability and growth.
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