To be able to run a business successfully, you need to have a good business plan, strong execution and also good financials. The Entrepreneurial Operating System® (EOS®) is a exceptional methodology that helps in managing and growing business, but it is also equally essential to focus on achieving financial objectives in synch with your business strategy. When you apply strategic and focused financial management alongside EOS® methodologies you can fast track your financial goals.
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.
In this blog, we will explain how to connect your financial objectives with EOS® and share practical tips that will enable your business to work more effectively and generate more revenue.
1. Start with Your Vision: Integrate Financial Objectives with the Long-Term Vision
The first step to this is to ensure that your financial goals are linked to EOS® strategies and this can only be done if the goals are linked to your long term objectives. The EOS® model also asks business owners to complete the Vision/Traction Organizer (V/TO) in order to articulate the 10-year vision, the 3-year picture, and the 1-year plan. It is therefore useful to define the financial results you want to achieve within these periods so that you have a clear plan for your business with focus on profitability and expansion.
Action Steps:
– Define Your Long-Term Financial Vision: What do you hope to achieve concerning your financial situation in the next ten years? It could be setting the revenue targets, cutting down the debt or enhancing the cash position, define the financial targets that support your business strategy.
– Set 3-Year Financial Milestones: It is therefore important to translate your long term financial goals into short term goals that can be achieved within a 3 year plan. This could mean achieving certain revenues or profits, securing certain investments or diversifying into new territories.
– Develop a 1-Year Plan: From your 3-year goals, set out some more specific financial targets for the next one year. Concentrate on such indicators as revenues, margins, and costs.
2. Set Financial Rocks to Achieve Quarterly Targets
In EOS®, “Rocks” are the top priorities for the quarter that will help your business achieve its long-term vision. To integrate your financial goals with EOS®, you begin with Rocks that focus on the aspects of your finance that require improvement. This way, you can concentrate on the most valuable financial activities in the upcoming three months.
Action Steps:
– Identify Key Financial Areas: Find out which financial indicators need to be monitored, for instance, cash flow, profitability, or expenses. For instance, a Rock may include the need to raise the cash flow by 20% or cut down the operating costs by 15% in the quarter.
– Set Measurable Financial Rocks: Every financial rock should be clear, quantifiable and realistic to be achieved in the course of the quarter. This leads to a clear understanding and direction for your team, so that each member knows what financial objectives are to be achieved.
– Assign Ownership: Ensure that every Rock has an assignee who has the responsibility of seeing that the Rock is finished. This helps in monitoring the progress and deliver the results at the end of the quarter.
3. Use Your Scorecard to (Also) Measure Financial Health
One of the most important elements of EOS® is the Scorecard, which is a set of tools that help to monitor the most important parameters of the company on a weekly basis. To synchronize your financial objectives with EOS® tools, include financial indicators in your Scorecard. This allows you to track the progress and make changes on the go to ensure that you are on the right track.
Action Steps:
– Select Key Financial Metrics: Select 5-15 financial indicators that are most important for your business, for example, revenue, gross profit margin, accounts receivable or cash and cash equivalents.
– Review Metrics Weekly: Have a weekly check in with your team to discuss the Scorecard and determine which financial measures are on or off track. This gives you a summary of your financial standing and you can make adjustments if you are not in a good shape.
– Track Trends Over Time: Utilize the Scorecard to monitor the financial performance trends so that you can be able to notice some trends and prepare for the worst.
4. Ensure that your Accountability Chart is in sync with Financial Roles.
The EOS® Accountability Chart is a tool that is used to map out roles and responsibilities of employees in an organization based on their functions. To make sure that your financial objectives are in line with EOS®, you need to define who is accountable for what when it comes to finance, including budgeting, forecasting, cash management, and reporting.
Action Steps:
– Define Financial Roles: List all the financial tasks that are required in your business such as cash management, budgeting, approving expenses and financial statements.
– Assign Accountability: Check that all the financial roles are assigned to specific people in the Accountability Chart. For instance, your CFO may be held responsible for the overall financial plan of the organization while other departmental managers may be expected to manage their budgets.
– Create Cross-Functional Teams: Promote cooperation between the finance and other departments to make sure that the financial objectives are well understood by the entire organization.
5. Maximizing the use of Level 10 Meetings for the Purpose of Financial Alignment.
Level 10 Meetings are an essential tool that helps your team to stay on track, discuss problems and be on the same page weekly. It is suggested to include financial matters in your Level 10 Meetings so that the financial objectives are always under consideration of the team.
Action Steps:
– Include Financial Metrics in Your Agenda: Spend at least a few minutes in each meeting to focus on the financial Scorecard, the financial variances and the financial issues that need to be addressed.
– Use the Issues List for Financial Challenges: In case of a financial problem that cannot be solved at the moment, record it in the Issues List. This helps in solving the financial problems in the organization as they occur.
– Celebrate Financial Wins: If Financial Rocks are attained or if there is a lot of progress, make sure that these are acknowledged in the meeting. This builds the pressure and reminds the person on the need to achieve the financial goals that they had set.
6. Establish Standard Operating Procedures for Financial Processes
EOS® also stresses the need to establish and document procedures. To make sure your financial goals are in line with EOS®, create Standard Operating Procedures (SOPs) for critical financial processes like budgeting, invoicing and month end close.
Action Steps:
– Document Financial Processes: Ensure that there are well laid down, understandable and easily followed procedures for all the financial activities to enhance compliance and productivity.
– Assign Responsibilities: It is important that each process should have an owner who will be in charge of the execution of the process, for control purposes.
– Regularly Review and Update SOPs: It is important to review financial processes from time to time especially where there are changes in the business or new financial objectives.
7. Connect Your Financial Objectives to the Vision/Traction Organizer (V/TO)
The Vision/Traction Organizer (V/TO) is one of the most important EOS® tools that define your company’s vision, core values, and strategy. To make sure your financial goals are in sync with EOS®, make sure that you have incorporated financial goals into your V/TO.
Action Steps:
– Include Financial Goals in the V/TO: Ensure that your long-term financial objectives like the revenues or the profit margins are well articulated in the V/TO.
– Communicate the Vision: Make sure that the V/TO is shared with the entire team and everyone is aware of the financial targets and his or her contribution towards it.
– Review Annually: It is recommended to check on your financial goals at least once per year and see whether they are still in line with your long-term goals and make changes if needed.
In Summary
To ensure that you have a business that is fit for purpose, grows in a healthy way and is profitable in the long run, it is important that your financial goals are in sync with the your approach to running the business. For EOS® users, by concentrating on your vision, setting measurable Rocks, paying attention to the key financial metrics, and encouraging accountability, you will have a clear path to financial success.
No matter if you are new to EOS® or want to optimize your financial planning, these steps will help you to establish a better link between your financial targets and business goals. When aligned correctly, you will be equipped with the resources which are necessary for both financial and operational performance.
Need more assistance with how to align a financial plan into your organization? Let’s chat, we can help.
