Every Small Business Needs a Financial Operating System

Installing a Financial Operating System

We're big fans (and users) of Gino Wickman's EOS (Entrepreneurial Operating System), which outlines a useful framework for business management. I'd highly recommend if you're in need of a basic structure for meetings, people management, and setting a company vision.

What it lacks is a robust financial management structure, or what I'll refer to as a Financial Operating System.

What is a Financial Operating System (FOS)?

An FOS is a framework or set of processes to manage your business's financial operations, think of it as your financial backbone. Wouldn't it be amazing to have a simple playbook telling you what to do, when to do it, and what to look for in your finances?

Profit Mastery is built to be that Financial Operating System. It was originally designed as a simple yet sophisticated set of financial tools for business owners, lenders, advisors, etc.

How should it work?

Imagine your computer's operating system (whether you're a Windows or Mac fan). Behind the scenes, it's all numbers and code, indecipherable by us mere humans. But with an operating system, we get a nice visual layout (home screen), access to our favorite tools (excel), and an organization system (folders).

A good financial system should work the same way and for businesses of any size and staff (whether you're a solopreneur or a Fortune 500 operation).

Here's a visual of how I think it should work:

1. Financial Operations – Your financial ops range from the day-to-day basics needed to run your business (bill pay, invoicing, collections, payroll, etc.), to proper bookkeeping, to producing reports, all the way to having a solid financial strategy and strategic plan. These feed the data into...
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2. Tools and Concepts – We're boiling down all those complex financial and accounting elements spanning your entire business into a simple set of tools and concepts. These are the pieces we'll dissect and what time horizon they cover. They tell us how we're doing (ratios), how we should be doing (benchmarks), overall financial health (scorecard), etc.
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3. Financial Review – How often should we be looking at what items? That's your Financial Review cycle. It's the review process (how we look at everything) and interval (when we look at it).

So what's the output of this system?

Financial management exists for 3 purposes: 1) to keep money flowing smoothly through your business; 2) to generate maximum profitability and cash flow; and 3) to share information and insights throughout the company for improved management.

If your system is functioning properly, it's going to spit out all sorts of useful information on a regular basis... you're overstaffed in this area of the business, raise prices on product A, sell off inventory on product B and stop reordering, cash will run out in 7 weeks, and the list goes on...

Why this is important?

Without a good operating system, the burden is on you to figure out what to look at and when. That assumes you have good information to look at in the first place.

Maybe this feels a little more theory and a little less practical... Below is a list of all things a well-functioning financial system should cover (maybe a little more useful)

Profit Mastery is an excellent framework for your Financial Operating System. Get started with our online classes if you want to self-implement or ask us about implementation services!

Homework – Take a look at the list above and see how you're doing against these. Do you feel like you have a solid structure for your financial systems?