(0:00) What gets measured gets managed, right? I promise you, if you create financial responsibility across the organization, you will get incredible results just like I have over my decades in business. This is Business Strategy, where I help the ambitious to build more profitable, iconic companies using the principles I've learned while growing and turning around million and billion-dollar companies through Coltivar.com. I hope you share and enjoy.

(0:25) If you're a business owner and you want to achieve higher profits and cash flow, one of the first ways to do this is to assign financial responsibility across the organization. I'm going to show you how I do this in organizations by walking you through the macro way and then through the nerdy way.

(0:39) My name is Steve Coughran. I'm the founder of Coltivar. I've spent the last 15 years of my life turning around and growing organizations, and I do that by creating a bridge between strategy and finance. Today, I'm going to show you how to instill accountability and responsibility across all levels of the organization from a financial perspective.

(0:59) As promised, there are two ways to do it. First, I'm going to walk you through the macro way, and then I'm going to get into the nerdy way of doing things. We're going to start high level, and then we're going to get into the weeds, and I'm going to show you these two paths so you get to choose which one you want to follow.

(1:17) First, let's begin with the macro way. I'm always saying it sounds like I'm saying microwave, but it's macro way. The macro way of assigning accountability and responsibility across the organization is to pull your financial statements. There are two financial statements specifically. Number one is your income statement. Number two is your balance sheet.

(1:37) So you just begin with these financial statements, and guess what? Every single line item on those financial statements could be assigned to an individual in your organization. And when you do that, then they will have responsibility for that line item on the financial statement, and therefore, they will be accountable.

(1:54) And when you do this, you can't have two people assigned to the same line item. Instead, it's just one person. Even if two people touch it or three people touch it, assign it to one person. That's a big mistake I made early on. And when you have multiple people assigned to one line item, guess what? You get it.

(2:14) Why is labor going down? I don't know. I think this person knows. So you want to avoid all that. One person is assigned to every single line item. Then in your monthly financial strategy review meetings, as you're going through the numbers and you're comparing that to your strategy, if something is running amok, then you have somebody to point to.

(2:28) For example, let's say you're in the meeting. Gross margin is declining, and you figure out that it's a labor problem. Your labor costs are on the rise. Your hours are increasing. Your efficiency is going down. Your throughput is dropping. And therefore, you could go to this person. Let's say it's Dave. You say, hey, Dave, what's going on with labor? And maybe they know. Maybe they come to the meeting prepared, or maybe they don't know.

(2:59) Regardless, you have a point person to go and research and find out the details behind what's going on with that item. And then you can put in place actions to drive better performance the following month. And that's what the FSR process is all about, the financial strategy review. You look at the financial statements. They're the report card of your organization. You look at the results, and then you make up plans.

(3:30) You take action to drive better results. And then you meet again the following month, and you're making adjustments along the way to your strategy. So that's how the whole process works, the iterative process. You build, you measure, you learn, you make adjustments. All right, so that's the macro way. You just assign people to the income statement and the balance sheet to each line item.

(3:52) Now, you may be wondering, Steve, don't you love the statement of cash flows? Because I'm always talking about the statement of cash flows being my little baby. Well, it's true. I do love the statement of cash flows, but it's derived from the income statement and the balance sheet.

(4:16) So if you have those two financial statements covered, then you're good. If you want to go one level deeper, sure, you could assign people to the statement of cash flows, but there's going to be a lot of overlap. Because think about it. On the statement of cash flows, it begins with net income. Well, guess what? Net income is already picked up by somebody on the income statement. Same thing with working capital.

(4:43) So your working capital accounts are coming from your balance sheet. So it gets a little bit duplicative, but you can assign people to the statement of cash flows, or maybe just some line items that aren't so evident on the other financial statements. For example, capital expenditures, right? Capital expenditures, you can find them by looking on the balance sheet under property, plant, and equipment.

(5:08) But if you want to, you can get nerdy and you can assign capital expenditures to somebody in addition to your property, plant, and equipment. If your mind just blew up because I just threw out a bunch of accounting terms, I'm about to get even nerdier on you.

(5:30) So here's the deal. If you want to get super nerdy, and this is really the approach I take when I'm turning around and growing companies, is I like to pull the chart of accounts. If you don't know what the chart of accounts is, you can just ask your accountant or bookkeeper to pull the chart of accounts and give it to you, right? Or you could Google it, or you could use chat GPT, whatever.

(5:56) But essentially, your chart of accounts is a list of all the accounts in your organization, all the income statement accounts, and all the balance sheet accounts. The nice thing about the nerdy path and beginning with the chart of accounts is that perhaps there are some accounts that are sub-accounts to parent accounts that roll up to your income statement.

(6:22) In other words, let's just say on your income statement, you have a line item called revenue, but underneath revenue, you track that across four other accounts, right? So maybe you have a revenue account for the North and for the East and for the South and for the West, but they all roll up into one line item on your income statement.

(6:46) That's why getting into the chart of accounts will give you the detail and granularity you need to assign even more responsibility and accountability. So if you want to get more nerdy, then I would start with the chart of accounts and assign every single account to one person, one owner.

(7:07) If you want to take more of a macro view, then just assign somebody to every single line item on your income statement and balance sheet. And just remember during your monthly financial strategy review meeting, as you're looking at the numbers, it's important to not just look at them, but also ask yourself, okay, what actions can we take or what behaviors do we need to change to drive better results?

(7:36) And then as you do that, and you have ownership across all these line items, guess what performance is going to improve. What gets measured gets managed, right? I promise you, if you create financial responsibility across the organization and people are talking about their numbers in their owning the numbers, you will get incredible results just like I have over my decades in business.

(8:05) If you need any help with this, or you want to talk about your company's strategy, you can always reach out at Coltivar.com. Be sure to share if you found value and until next time, take care of yourself. Cheers.